AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 3/11/96
FILE NOS: 2-28049
811-1586
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. _______ / /
Post-Effective Amendment No. 45 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 45
(Check appropriate box or boxes.)
THE KAUFMANN FUND, INC.
-----------------------
(Exact name of Registrant as Specified in Charter)
140 E. 45TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10017
-------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
212-922-0123
------------
MARTIN V. MILLER, ESQUIRE, 140 E. 45TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10017 - 212-922-0123
------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as
practicable following effective date.
It is proposed that this filing will become effective (check appropriate box):
/ X / immediately upon filing pursuant to paragraph (b)
/ / on (DATE) pursuant to paragraph (b)
<PAGE>
/ / 60 days after filing pursuant to paragraph (a)(1)
/ / on (date) pursuant to paragraph (a)(1)
/ / 75 days after filing pursuant to paragraph (a)(2)
/ / on (date) pursuant to paragraph (a)(2) of rule 485
If appropriate, check the following box:
/ / this post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
A Rule 24f-2 Notice for the year ended December 31, 1995
was filed on February 15, 1996
TOTAL NUMBER OF PAGES ____
EXHIBIT INDEX BEGINS
ON PAGE ____
<PAGE>
FORM N-1A
_________
CROSS REFERENCE SHEET
_____________________
Form N-1A PART A
- ----------------
ITEM # PROSPECTUS LOCATION
- ------ -------------------
1. Cover Page.................... Cover Page
2. Synopsis...................... Summary and Fee Table
3. Condensed Financial Schedule of Selected per Share
Information................... Data and Ratios, Financial Highlights
4. General Description of The Fund, Investment Objective
Registrant.................... and Policies, The Investment
Policies Particularized,
Investment Risks, Portfolio
Turnover
5. Management of the Fund........ Management of the Fund
5A. Management Discussion of Management's Discussion of
Fund Performance.............. Fund Performance
6. Capital Stock and Other
Securities..................... Capital Stock
7. Purchase of Securities Purchase of Fund Shares,
Being Offered.................. Account Statements,
Determination of Net Asset
Value, Distribution Plan,
Special Investor Services,
Service Fees
8. Redemption or
Repurchase...................... Redemption of Shares
9. Pending Legal Proceedings..... N/A
<PAGE>
FORM N-1A PART B
- ----------------
LOCATION IN STATEMENT
ITEM # OF ADDITIONAL INFORMATION
- ------ -------------------------
10. Cover Page.............. Cover Page
11. Table of Contents....... Table of Contents
12. General Information See Item "The Fund" in
and History............. Prospectus
13. Investment Objectives Investment Objective and
and Policies............ Policies, Investment
Restrictions
14. Management of the Fund.. Management of the Fund
15. Control Persons and
Principal Holders of Principal Holders of
Securities.............. Securities
16. Investment Advisory Investment Advisory Services,
and Other Services...... Custodian, Auditor, See item
"Transfer Agent and Custodian"
in Prospectus
17. Brokerage Allocation and
Other Practices......... Brokerage Allocation
18. Capital Stock and See item "Capital Stock" in
Other Securities........ Prospectus
19. Purchase, Redemption and Purchase and Redemption of
Pricing of Securities Shares, Special Investor
Being Offered............ Services, Distribution Plan.
See "Purchase of Fund Shares" and
"Determination of Net Asset Value"
in Prospectus
20. Tax Status............... Taxes, Dividends and Capital
Gains, See same heading in Prospectus
21. Underwriters............. N/A
<PAGE>
FORM N-1A PART B (Continued)
- ----------------------------
LOCATION IN STATEMENT
ITEM # OF ADDITIONAL INFORMATION
- ------ -------------------------
22. Calculations of Performance Additional Performance Information
Data...................... for the Fund
23. Financial Statements...... Financial Statements
<PAGE>
FORM N-1A PART C
- ----------------
ITEM # LOCATION IN PART C
- ------ ------------------
24. Financial Statements Financial Statements and
and Exhibits........... Exhibits
25. Persons Controlled by
or Under Common Control Persons Controlled by or Under
with Registrant........ Common Control with Registrant
26. Number of Holders of Number of Holders of
Securities............. Securities
27. Indemnification........ Indemnification
28. Business and Other
Connections of Business and Other Connections
Investment Advisor..... of Investment Advisor
29. Principal Underwriter.. Principal Underwriter
30. Location of Accounts Location of Accounts and
and Records............ Records
31. Management Services.... Management Services
32. Undertakings........... Undertakings
T H E K A U F M A N N F U N D, I N C.
P R O S P E C T U S
M A R C H 1 1, 1 9 9 6
__________________________________________
<PAGE>
PART A
<PAGE>
PROSPECTUS & APPLICATION MARCH 11, 1996
THE KAUFMANN FUND, INC.
140 EAST 45TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10004
(212) 922-0123
FOR HELP IN COMPLETING QUESTIONS CONCERNING FOR CURRENT NET ASSET
YOUR APPLICATION: SHAREHOLDERS ACCOUNTS: VALUE PER SHARE:
1-800-261-0555 1-800-261-0555 (212) 661-4699
INVESTMENT OBJECTIVE - CAPITAL APPRECIATION
The Fund seeks capital appreciation by investing principally in common
stocks.
SHARE SALES AT NET ASSET VALUE
Shares are sold at net asset value. The Fund has adopted a Rule 12b-1
plan whereby up to .75% of the Fund's assets per year may be utilized
currently for distribution expenses. The Fund charges 0.2% in
connection with each redemption of Fund shares acquired after
February 1, 1985.
MINIMUM INITIAL INVESTMENT
The minimum initial investment is $1,500 for regular accounts. For IRA
accounts and for the Automatic Investment Plan the minimum initial
investment is $500.
PLANS AVAILABLE
The Fund offers Automatic Investment Plans, Systematic Withdrawal
Accounts and The Kaufmann/Reserve Fund Money Market Switch Plan.
The Prospectus sets forth concisely, the information about the Fund that
a prospective investor ought to know before investing. Investors are
advised to read and retain this prospectus for future reference.
Additional information about the Fund has been filed with the Securities
and Exchange Commission and is available upon request without charge. A
Statement of Additional Information, dated the date of this Prospectus,
is hereby incorporated by reference into this Prospectus and is
available without charge upon request to the Fund at the address or
telephone number shown above.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
TABLE OF CONTENTS
Page(s)
SUMMARY . . . . . . . . . . . .
FEE TABLE . . . . . . . . . . .
CONDENSED FINANCIAL INFORMATION . . . . . .
THE FUND . . . . . . . . . . .
INVESTMENT OBJECTIVES AND POLICIES . . . . . .
THE INVESTMENT POLICIES PARTICULARIZED . . . . .
INVESTMENT RISKS . . . . . . . . .
PORTFOLIO TURNOVER. . . . . . . . . .
MANAGEMENT OF THE FUND . . . . . . . . .
Investment Advisor . . . . . . . .
PURCHASE OF FUND SHARES . . . . . . . .
By Mail . . . . . . . . .
By Telephone . . . . . . . .
By Bank Wire . . . . . . . .
Through Broker-Dealers . . . . . .
General . . . . . . . . .
Account Statements . . . . . . . . .
REDEMPTION OF SHARES . . . . . . . .
General . . . . . . . . .
Good Order for Redemption Requests . . . .
By Mail . . . . . . . . .
By Telephone, Telegram or Overseas
Cable . . . . . . . . .
Accuracy of Investor Account Information . .
Redemption at the Option of the Fund . . .
Redemption in Kind . . . . . . .
TAXES, DIVIDENDS AND CAPITAL GAINS . . . . . .
CAPITAL STOCK . . . . . . . . . .
<PAGE>
Page(s)
DETERMINATION OF NET ASSET VALUE . . . . . .
SPECIAL INVESTOR SERVICES . . . . . . .
Money Market Switch Plan . . . . . . .
Automatic Investment and
Systematic Withdrawal Plans . . . . . .
Retirement Plans and IRA Accounts . . . . .
Shareholder Statements and Reports . . . . .
DISTRIBUTION PLAN . . . . . . . . .
SHAREHOLDER SERVICING AND TRANSFER AGENT
AND CUSTODIAN . . . . . . . . . .
APPLICATION . . . . . . . . . .
<PAGE>
SUPPLEMENT TO PROSPECTUS DATED MARCH 11, 1996
FOR ARIZONA RESIDENTS ONLY
- --------------------------
The Kaufmann Fund, Inc. (the "Fund") has adopted a distribution
plan effective October 19, 1987 and subsequently amended pursuant to
which the Fund may incur distribution expenses of up to .75% per annum
of the Fund's average net assets.
While these fees may exceed the industry norm, the Distribution Plan
was approved by the vote of the majority of Fund shareholders. (See
Distribution Plan, Page ___).
If in any taxable year the Fund does not qualify as a regulated
investment company under the Internal Revenue Code, all Fund
distributions to shareholders would be taxed as ordinary dividends.
(See Taxes, Dividends, and Capital Gains, Page ___).
Investors in The Kaufmann Fund, Inc. should be aware that the
aggressive investment techniques of the Fund entail greater than average
risk to the extent such techniques are utilized. (See Investment Risks,
Page ___).
FOR IOWA RESIDENTS ONLY
- -----------------------
The Kaufmann Fund, Inc. (the "Fund") entails greater than average
risks for investors due to its aggressive investment policies. (See
Investment Risks, Page ___).
In addition, the positions of two officers and directors of the Fund
(Messrs. Utsch and Auriana) create an inherent potential conflict of
interest. (See Potential Conflicts, Page ___, in the Statement of
Additional Information).
FOR OHIO RESIDENTS ONLY
- -----------------------
1. This prospectus must be delivered to the investor prior to the
consummation of sale.
2. Investment in this investment company may involve a higher degree
of risk than investment in more traditional open-end, diversified
investment companies because the company:
May purchase up to 49% of the voting securities of any one issuer.
May invest up to 50% of its assets in the securities of issuers with an
operating history of less than three years continuous operation and up
to 10% of the value of its net assets in restricted securities and other
illiquid assets.
<PAGE>
May borrow, pledge, mortgage or hypothecate assets on behalf of the
company up to 50% of the total company assets.
May purchase the securities of other investment companies with no
limitation.
May borrow for leveraging purposes. Leveraging has advantages and
disadvantages, both of which should be carefully evaluated by the
investors. Leveraging is discussed in more detail on Page ___ of
the prospectus.
FOR MISSOURI AND SOUTH DAKOTA RESIDENTS ONLY
- --------------------------------------------
The securities of The Kaufmann Fund, Inc. (the "Fund") may involve
certain risks due to the Fund's investment policies such as (1) Leverage
- - borrowing money for investment (see Leverage, Page ___); (2) Short
sales - the sale of borrowed securities (see Short Sales, Page ___); (3)
Short term operations - making short term investments (see Short Term
Investments, Page ___); (4) Put and call options (see Investment
Objectives and Policies, Page ___). These aggressive investment
techniques will entail greater than average risks to the extent such
strategies are utilized. (See Investment Risks, Page ___).
FOR TEXAS RESIDENTS ONLY
- ------------------------
Shares of the The Kaufmann Fund, Inc. (the "Fund") may also be
purchased through registered broker dealers. There may be a charge for
this service; see Page ___ of the Fund's prospectus for further
information.
Jack White and Co. Inc. acts as the broker-dealer for the Fund in
the State of Texas.
<PAGE>
SUMMARY
THE FUND
The Kaufmann Fund, Inc. (the "Fund") is an open-end, diversified
management investment company the investment objective of which is
capital appreciation. Production of income is incidental to this
objective. The Fund seeks to achieve its investment objective by
investing in common stocks, convertible preferred stocks and bonds
including convertible bonds.
The Fund may also invest, subject to specific percentage
limitations, in warrants, options, restricted securities, the securities
of foreign issuers and in the securities of other investment companies.
The Fund may also engage, again subject to specific percentage
limitations, in short selling and in leveraging. These investment
policies are deemed to be speculative. (See the text under the caption
"Investment Objective and Policies" pages ____ through ____ of the
Prospectus and under the caption "Investment Objective, Policies and
Restrictions", pages ____ through ____ of the Statement of Additional
Information, for detailed information.)
PURCHASE OF SHARES
Shares of the Fund are sold at net asset value. Shares of the Fund
may be purchased by mail, by bank wire or telephone, and through
broker-dealers (see "Purchase of Shares" at pages ______). The price at
which Fund shares are offered to the public will vary with fluctuations
in the market value of securities and other assets owned by the Fund.
The Fund has adopted a distribution plan pursuant to which the Fund
may currently incur distribution expenses of up to .75% per year of the
Fund's average daily net assets (see "Distribution Plan" at page ____).
The minimum initial investment is $1,500 ($500 for Individual
Retirement Accounts and Automatic Investment Plan accounts). Subsequent
investments may be made at any time in amounts of $1,000 or more by
telephone, (subject to certain restrictions), $100 or more by mail, or
$50 or more through the Automatic Investment Plan or, according to your
tax situation, for IRA accounts.
The Fund has available for its investors the following specialized
accounts: a Systematic Withdrawal Plan, Automatic Investment Plan,
Individual Retirement Accounts ("IRAs") and The Kaufmann/Reserve Fund
Money Market Switch Plan (see "Special Investor Services" at pages ___).
1
<PAGE>
SERVICE FEES
The Fund may pay service fees of up to .25% per annum of the Fund's
average daily net assets for personal services to customers by broker
dealers and for the maintenance of shareholder accounts.
REDEMPTION OF SHARES
Shares are redeemable at net asset value, as next determined after
receipt of a redemption request in proper form. The Fund will impose a
redemption fee on Fund shares acquired after February 1, 1985, equal, in
the aggregate, to 2/10ths of 1% of the value of the shares redeemed (see
"Redemption of Shares" at pages ______).
INVESTMENT ADVISOR
Edgemont Asset Management Corporation serves as the Fund's
investment advisor.
2
<PAGE>
FEE TABLE
The following table summarizes your maximum transaction costs from
investing in the Fund and expenses incurred by the Fund based on its
most recent fiscal year. For a description of these costs and expenses,
see "Management of the Fund" at page ____, and "Distribution Plan" at
page ____ in this Prospectus. The examples show the cumulative expenses
attributable to a hypothetical $1,000 investment in the Fund over
specified periods.
SHAREHOLDER TRANSACTION EXPENSES
Sales Load Imposed on Purchases .................. None
Sales Load Imposed on Reinvested Dividends ........ None
Deferred Sales Load Imposed on Redemptions ........ None
Redemption Fee
(as a percentage of amount redeemed,
if applicable) ...................................... 0.2% (1)
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management Fees ...................................... 1.50%
12b-1 ............................................... 0.53% (2)
Service Fees ......................................... 0.08% (2)
Interest Expense ..................................... 0.01%
Other Expenses ....................................... 0.05% (3)
TOTAL FUND OPERATING EXPENSES ........................ 2.17%
- ------------------------------
1 The Fund imposes a 2/10ths of 1% (0.2%) redemption fee on the redemption
price of the Fund's capital stock shares that are redeemed, if such shares
were purchased after February 1, 1985.
2 Long-term shareholders may pay more than the economic equivalent of the
maximum permitted front-end sales charges.
3 Edgemont Asset Management Corporation has agreed to assume certain
expenses of the Fund that exceed the limits prescribed by any state in
which the Fund's shares are qualified for sale.
For redemption by wire there is a $9.00 fee.
THE KAUFMANN FUND, INC.
FEE TABLE
EXAMPLES:
As an investor in the Fund, you would incur the following expenses on a
$1,000 investment, assuming (1) 5% annual return, (2) a redemption fee
equal to 0.2%, and (3) redemption at the end of each period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$24 $70 $119 $254
Your $1,000 investment would incur the following expenses, assuming 5% annual
return but no redemption:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
$22 $68 $117 $251
The table is provided to assist you in understanding the costs and expenses
of investing in the Fund and your share of the operating expenses which
the Fund incurs. The table and examples are based on the operating expenses
for the Fund's last fiscal year. The table and examples do not represent
past or future expense levels, and actual expenses may be greater or less
than those shown. Federal regulations require the examples to assume a
5% annual return, but actual annual return has varied.
3
<PAGE>
<TABLE>
<CAPTION>
The Kaufmann Fund, Inc.
FINANCIAL HIGHLIGHTS
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $3.76 $3.45 $2.95 $2.65 $1.53 $1.63 $1.11 $0.70 $1.13 $1.13
- -------------------------------------------------------------------------------------------------------------------------------
Income From Investment Operations:
Net Investment
Income (Loss) (0.060) (0.06) (0.049) (0.05) (0.05) (0.04) (0.03) - 0.01 0.02
Net Realized and
Unrealized Gain (Loss)
on Investments 1.445 0.37 0.584 0.35 1.25 (0.06) 0.55 0.41 (0.43) (0.02)
---------- ---------- -------- -------- -------- ------- ------- ------ ------ ------
Total From Investment
Operations 1.385 0.310 0.535 0.30 1.20 (0.10) 0.52 0.41 (0.42) 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from Net
Investment Income - - - - - - - - 0.01 -
Distributions from Net
Realized Gain 0.095 - 0.035 - 0.08 - - - - -
---------- ---------- -------- -------- -------- ------- ------- ------ ------ ------
Total Distributions 0.095 0.00 0.035 0.00 0.08 0.00 0.00 0.00 0.01 0.00
- -------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $5.05 $3.76 $3.45 $2.95 $2.65 $1.53 $1.63 $1.11 $0.70 $1.13
- -------------------------------------------------------------------------------------------------------------------------------
Total Return 36.84 % 8.99 % 18.18 % 11.32 % 79.18 % (6.14)% 46.85 % 58.57 % (37.16)% 0.00 %
- -------------------------------------------------------------------------------------------------------------------------------
Ratios/Supplemental Data:
Net Assets, End of Year
(In Thousands) $3,163,310 $1,592,551 $966,632 $314,371 $141,134 $39,711 $36,370 $5,731 $1,888 $3,285
Ratio of Expenses (After
Expense Reimbursement)
to Average Net
Assets (%) 2.17 % 2.29 % 2.53 % 2.94 % 3.64 % 3.45 % 2.36 % 2.00 % 2.00 % 1.48 %
Ratio of Interest
Expense to Average
Net Assets (%) 0.01 % 0.02 % 0.03 % 0.08 % 0.52 % - - - - -
---------- ---------- -------- -------- -------- ------- ------- ------ ------ ------
Ratio of Expenses (After
Expense Reimbursement
Less Interest Expense)
to Average Net
Assets (%) 2.16 % 2.27 % 2.50 % 2.86 % 3.12 % 3.45 % 2.36 % 2.00 % 2.00 % 1.48 %
Ratio of Net Investment
Income (Loss) to
Average Net Assets (%) (1.24)% (1.58)% (1.34)% (1.74)% (1.96)% (2.56)% (1.41)% (0.23)% 0.92 % 1.67 %
Portfolio Turnover
Rate (%) 60 % 47 % 55 % 51 % 128 % 195 % 202 % 343 % 228 % 125 %
Shares Outstanding
at End of Year
(In Thousands) 626,600 424,108 280,157 106,469 53,225 25,980 22,268 5,171 2,685 2,908
- -------------------------------------------------------------------------------------------------------------------------------
Borrowings for the Year:
Amount of Debt
Outstanding at
End of Year - - $49,000,000 $4,015,965 $3,017,622 - - - - -
Average Amount of
Debt Outstanding
During the Year - $3,776,120 4,563,115 3,260,421 2,149,395 - - - - -
Average Number of
Shares Outstanding
During the Year
(In Thousands) - 333,175 182,699 79,977 32,294 - - - - -
Average Amount of
Debt Per Share
During the Year - $0.01 $0.03 $0.04 $0.06 - - - - -
Note A: In 1986, there was a change in the Fund's management, and shareholders approved extensive changes in the Fund's
investment policies and restrictions.
This information has been examined and reported on by Sanville & Company, Independent Public Accountants, for the years ended
December 31, 1995, 1994, 1993, 1992, 1991, 1990 and 1989, by Stavisky, Knittle, Isaacs & Dichek, Independent Public Accountants,
for the years ended December 31, 1988, 1987 and 1986.
4
</TABLE>
<PAGE>
THE FUND
The Kaufmann Fund, Inc. (the "Fund"), originally incorporated as a
New York corporation on September 11, 1967, became dormant over the
years and did not again become fully operational until 1986 when present
management assumed control. The Fund was actively managed until
February, 1993, when the Fund was reorganized as a Maryland corporation
with the same investment management. The Fund's offices are at 140 E.
45th Street, 43rd Floor, New York, NY 10017, and its telephone number is
(212) 922-0123. The Fund is an open-end, diversified, management
investment company, as defined by the Investment Company Act of 1940, as
amended (the "1940 Act"). As an investment company, it invests the
monies received from the sale of its shares in a portfolio of
securities.
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Fund is capital appreciation.
Production of income is incidental to this objective. There is no
assurance that the Fund will achieve its investment objective.
Among factors the Fund considers when selecting investments in
companies are (i) the growth prospects for a company's products, (ii)
the economic outlook for its industry, (iii) a company's new product
development, (iv) its operating management capabilities, (v) the
relationship between the price of the security and its estimated
fundamental value, (vi) relevant market, economic and political
environments, and (vii) financial characteristics such as balance sheet
analysis and return on assets.
The Fund's principal investments are in common stocks, convertible
preferred stocks and bonds, including convertible bonds. The Fund may
not invest in real estate limited partnership interests but may invest
in master limited partnership interests that are traded on a national
securities exchange. The Fund may also invest up to 5% of net assets in
warrants, up to 25% of the Fund's net assets in the securities of
issuers domiciled in foreign countries and engage in the purchase and
sale of put and call options in an amount of up to 10% of its net
assets. The Fund may make short sales of securities in an aggregate
amount not greater than 25% of net assets, and may borrow up to 33-1/3%
of net assets. For the leverage obtained by and the restrictions on
borrowing, including the risks thereof, see "Borrowing to Purchase
Securities (Leverage)" at page ____. For the risks involved in
investing in foreign securities, see "Foreign Securities" page ____.
For the risks involved in engaging in short sales and investing in
warrants see the text under the captions "Short Sales and Hedging
Operations" page ____ and "Warrants" page ____. For the risks involved
in investing in options, see the text under the caption "Risks Relating
to Options" page ____ in the Statement of Additional Information. The
Fund's investment policies concerning options, restricted securities,
short sales, warrants, foreign securities and short-term investing may
be changed without shareholder approval.
5
<PAGE>
The Fund invests primarily in the securities of small and
medium-sized companies (those with sales of less than $500 million)
which fall outside of the Standard & Poor's 500 Index of securities and
which securities may be speculative. The Fund acquires securities on
national security exchanges, on NASDAQ, and in the over-the-counter
market, including new issues, and may invest up to 10% of its net assets
in restricted securities, i.e., securities which are not readily
marketable, and in repurchase agreements which mature in seven days or
more. The Fund may also invest up to 10% of its total assets in
securities of other registered investment companies. When the
Investment Advisor so determines, the Fund reserves the right to invest,
from time to time, temporarily for defensive purposes, an unlimited
portion of its assets in investment grade debt securities (rated AA by
Standard & Poor's Corp. and Aa by Moody's Investor Services, Inc.),
United States Government securities and certificates of deposit, and to
hold cash. When the Fund invests for defensive purposes, it may affect
the attainment of the Fund's investment objective.
Reference is made to the Statement of Additional Information for
additional descriptions of the Fund's investment policies concerning
investing in the shares of other investment companies, investing in
repurchase agreements, the purchase and sale and the writing of put and
covered call options.
THE INVESTMENT POLICIES PARTICULARIZED
DIVERSIFICATION
The Fund is a diversified investment company. A diversified company
is one which meets the following requirements: at least 75% of the value
of its total assets is represented by cash and cash items (including
receivables), Government securities, securities of other investment
companies, and other securities for the purposes of this calculation
limited in respect of any one issuer to an amount not greater in value
than 5% of the value of the total assets of such company and not more
than 10% of the outstanding voting securities of such issuer.
A company which meets these requirements shall not lose its status
as a diversified company because of any subsequent discrepancy between
the value of its various investments and the requirements, so long as
any such discrepancy existing immediately after its acquisition of any
security or other property is neither wholly nor partly the result of
such acquisition.
CONCENTRATION
While the Fund will not concentrate its investments, it has reserved
the right to invest up to 25% of the value of its total assets in a
particular industry.
6
<PAGE>
OPTIONS
The Fund may write, purchase and sell put and covered call options,
and may engage in strategies employing combinations thereof. Purchases
by the Fund of put and call option contracts will be conducted so that
immediately after purchase of any such contract the aggregate sum
represented by premiums paid for such option contracts then held by the
Fund, after deducting the proceeds of covered options sold, will not
exceed 10% of the Fund's net assets.
A put option purchased by the Fund constitutes a hedge against a
decline in the price of a security owned by the Fund. A call option
constitutes a hedge against an increase in the price of a security which
the Fund has sold short. Gains and losses on investments in options
depend on the portfolio manager's ability to predict correctly the
direction of stock prices, interest rates and other economic factors.
Options may fail as hedging techniques in cases where the price
movements of the securities underlying the options do not follow the
price movements of the portfolio securities subject to the hedge. The
maximum loss exposure involved in the purchase of an option is the cost
of the option contract.
See page ___ of Statement of Additional Information for further
details.
BORROWING TO PURCHASE SECURITIES (LEVERAGE)
The Fund may employ "leverage" by borrowing money and using it to
purchase additional securities. Leverage increases both investment
opportunity and investment risk. If the investment gains on securities
purchased with borrowed money exceed the interest paid on the borrowing,
the net asset value of the Fund's shares will rise faster than would
otherwise be the case. On the other hand, if the investment gains fail
to cover the cost (including interest on borrowings), or if there are
losses, the net asset value of the Fund's shares will decrease faster
than would otherwise be the case.
The Fund may borrow money only from banks and only if, immediately
after the borrowing, the value of its net assets (including borrowings),
less its liabilities (excluding borrowings but including securities
borrowed in connection with short sales) is at least 300% of the amount
of the borrowing, plus all other outstanding borrowings. The amount the
Fund can borrow may also be limited by applicable margin limitations of
the Federal Reserve Board. Briefly, these provide that banks subject to
the Federal Reserve Act may not make a loan for the purpose of buying or
carrying "margin stocks" if the loan is secured directly or indirectly
by a margin stock, to the extent that the loan is greater than the
"maximum loan value" of the collateral securing the loan. "Margin
stock" includes, among other securities, stocks registered or having
unlisted trading privileges on a national securities exchange, any
equity security not traded on a national securities exchange which the
Federal Reserve Board has determined has the characteristics to warrant
being traded on a national securities exchange, options and
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warrants to acquire margin stock and debt convertible into a margin
stock or carrying a warrant or right to purchase a margin stock. A
maximum loan value is assigned by the Federal Reserve Board to specified
types of collateral. Puts, calls and combinations of puts and calls
essentially have no loan value.
If, for any reason, (including adverse market conditions) the Fund
fails to meet this asset coverage test, it will be required to reduce
borrowings within three business days to the extent necessary to meet
the test. This requirement may make it necessary to sell a portion of
the Fund's portfolio securities at a time when it is disadvantageous to
do so.
RESTRICTED SECURITIES
The Fund may invest up to 10% of the value of its net assets in
restricted securities (including repurchase agreements with maturities
of over seven days) or other illiquid assets. Restricted securities are
securities which, at any particular time, may not be readily and
publicly marketable. In valuing such securities for purposes of
computing net asset value, the Board of Directors, or a person or
persons acting under the authority of the Board of Directors, will be
required to make a good faith determination of current value which, in
all cases, will be at a discount from the market value of the same type
of securities of the same company which are not subject to restrictions.
The amount of the discount is based upon the difference between the
negotiated price paid for such securities and the market value of the
unrestricted securities at the time the purchase is agreed upon, but may
be increased or reduced, from time to time, by the Board of Directors,
or a person or persons acting under the authority of the Board of
Directors. It is often difficult to sell restricted securities at a
price approximating what is deemed to be their current value. In
addition, there is often a considerable time gap between the decision to
sell restricted securities and the actual sale, which time gap can
adversely affect the price obtainable.
If and when the Fund sells any restricted securities, it may be
deemed an "underwriter" within the meaning of the Securities Act of 1933
with respect thereto, and registration under the Securities Act of 1933
may be required, in which case, the Fund may have to bear the expenses
of such registration if the issuer or other person from whom the Fund
acquired such securities has not agreed to bear such expenses. Such
expenses of registration may be substantial. Other than as described,
the Fund may not underwrite the securities of other issuers.
The Fund may also invest in securities eligible for resale under
Rule 144A of the Securities Act of 1933 ("144A securities"). This Rule
allows certain qualified institutional buyers, such as the Fund, to
trade in privately placed securities despite the fact that such
securities are not registered under the Securities Act. The Fund's
investment advisor, acting pursuant to procedures adopted by the Board,
will consider the
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frequency of trades and quotes, the number of dealers and potential
purchasers, dealer undertakings to make a market, the nature of the
securities and the marketplace trades.
A Rule 144A security may become illiquid after purchase and the
Fund's Board of Directors will then determine what, if any action, is
required.
SHORT SALES
The Fund may seek to realize additional gains through short sale
transactions in securities listed on one or more national securities
exchanges, or in unlisted securities. Short selling involves the sale
of borrowed securities. At the time a short sale is effected, the Fund
incurs an obligation to replace the security borrowed at whatever its
price may be at the time the Fund purchases it for delivery to the
lender. When a short sale transaction is closed out by delivery of the
securities, any gain or loss on the transaction is taxable as short term
capital gain or loss.
Since short selling can result in profits when stock prices
generally decline, the Fund in this manner, can, to a certain extent,
hedge the market risk to the value of its other investments and protect
its equity in a declining market. However, the Fund could, at any given
time, suffer both a loss on the purchase or retention of one security,
if that security should decline in value, and a loss on a short sale of
another security, if the security sold short should increase in value.
When a short position is closed out, it may result in a short term
capital gain or loss for federal income tax purposes. Moreover, to the
extent that in a generally rising market the Fund maintains short
positions in securities rising with the market, the net asset value of
the Fund would be expected to increase to a lesser extent than the net
asset value of an investment company that does not engage in short
sales. Among the factors which management may consider in making short
sales are a decreasing demand for a company's products, lower profit
margins, lethargic management, and a belief that a disparity exists
between the price of the security and its underlying assets or other
values.
No short sale will be effected which will, at the time of making
such short sale transaction and giving effect thereto, cause the
aggregate market value of all securities sold short to exceed 25% of the
value of the Fund's net assets. The value of the securities of any one
issuer that have been shorted by the Fund is limited to the lesser of 2%
of the value of the Fund's net assets or 2% of the securities of any
class of the issuer. In addition, to secure the Fund's obligation to
replace any borrowed security, it will place in a segregated account, an
amount of cash or U. S. Government securities equal to the difference
between the market value of the securities sold short at the time of the
short sale, and any cash or U. S. Government securities originally
deposited with the broker in connection with the short sale (excluding
the proceeds of the short sale). The Fund will thereafter maintain
daily the segregated amount at such a level that the amount deposited in
it plus the amount originally deposited with the broker as collateral
will equal the greater of the current market value of the securities
sold short,
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<PAGE>
or the market value of the securities at the time they were sold
short. The Fund may make short sales "against the box", i.e., short
sales made when the Fund owns securities identical to those sold short.
Short sales against the box are not subject to the 25% limitation.
The Fund may only engage in short sale transactions in securities
listed on one or more national securities exchanges or on NASDAQ.
WARRANTS
The Fund also may invest up to 5% of its net assets in warrants.
Included within this amount, but not to exceed 2% of the value of the
Fund's net assets may be warrants which are not listed on the New York
or American Stock Exchanges. A reason for investing in warrants is to
permit the Fund to participate in an anticipated increase in the market
value of a security without having to purchase the security to which the
warrants relate. Warrants convey no rights to dividends or voting
rights, but only an option to purchase equity securities of the issuer
at a fixed price. If such securities appreciate, the warrants may be
exercised and sold at a gain, but a loss will be incurred if such
securities decrease in value or the term of the warrant expires before
it is exercised. The 5% limitation does not include warrants acquired
by the Fund in units or attached to other securities.
FOREIGN SECURITIES
Investments will be made primarily in securities of companies
domiciled in the United States, but the Fund has authority to make
investments in securities of issuers domiciled in foreign countries.
Such securities involve risks that are different from those of domestic
issuers, including the possibilities of (i) different political and
economic developments, (ii) imposition of governmental restrictions,
(iii) curtailment of dividends or principal through the use of currency
blockage at the source, and (iv) nationalization, expropriation of the
issuer or confiscatory taxation, (v) less regulation of business and
industry practices, and (vi) higher brokerage commissions. Such
securities also involve other considerations such as the then current
exchange rate if such issuer does not pay interest or dividends in U.S.
dollars. In addition, it may be more difficult to obtain and enforce a
judgment against a foreign issuer, trading volume may be substantially
less and more volatile, there may be less publicly available information
about the foreign issuer, and foreign issuers generally are not subject
to uniform accounting, auditing and financial reporting standards,
practices and requirements comparable to those applicable to domestic
issuers.
Not more than 25% of the Fund's net assets may be invested in the
securities of issuers domiciled in foreign countries.
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LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Fund may lend portfolio
securities constituting up to 30% of its total assets to unaffiliated
broker-dealers, banks or other recognized institutional borrowers of
securities, provided that the borrower at all times maintains cash or
equivalent collateral or provides an irrevocable letter of credit in
favor of the Fund equal in value to at least 100% of the value of the
securities loaned. During the time portfolio securities are on loan,
the borrower pays the Fund an amount equivalent to any dividends or
interest paid on such securities, and the Fund may receive an
agreed-upon amount of interest income from the borrower who delivered
equivalent collateral or provided a letter of credit. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may
pay reasonable administrative and custodial fees in connection with a
loan of portfolio securities and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or
placing broker. The Fund does not have the right to vote securities on
loan, but could terminate the loan and regain the right to vote if that
were considered important with respect to the investment.
The primary risk in securities lending is a default by the borrower
during a sharp rise in price of the borrowed security resulting in a
deficiency in the collateral posted by the borrower. The Fund will seek
to minimize this risk by requiring that the value of the securities
loaned be computed each day and additional collateral be furnished each
day if required.
The Fund will not lend its portfolio securities to Bowling Green
Securities, Inc., a broker-dealer affiliated with the Investment
Advisor.
Other than as set forth above, the Fund will not make loans, except
that the Fund may purchase a portion of an issue of publicly distributed
bonds, debentures or other securities, whether or not the purchase was
made upon the original issue of the securities.
SHORT TERM INVESTMENTS
The Fund may make short term investments when it is deemed desirable
to do so. The Fund may, from time to time, sell a security without
regard to the length of time that it has been held in order to realize a
profit or to avoid an anticipated loss. Short term transactions produce
higher portfolio turnover rates than would otherwise be the case,
resulting in the likelihood of larger expenses (including brokerage
commissions) than are incurred by mutual funds which engage only in long
term transactions. If gains from short term trading exceed 30% of the
Fund's gross income during any year, the Fund will not qualify for tax
treatment as a regulated investment
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company for such year. See "Taxes, Dividends, and Capital Gains",
page ____. There is, of course, no assurance that the Fund will obtain
any gains from its short term investments.
INVESTMENT RISKS
The Fund is subject to certain types of risks. It is subject to the
risks of the securities markets in which the portfolio securities of the
Fund are traded. Securities markets are cyclical and the prices of the
securities traded in such markets rise and fall at various times. These
cyclical periods may extend over significant periods of time.
The Fund is also subject to the risk that the Manager will not be
successful in managing the Fund's portfolio. The Manager will make
decisions on buying, selling or holding portfolio securities based upon
the skills of the Manager in interpreting the available economic,
financial and market data.
Investors should be aware that the investment techniques of the Fund
will entail greater than average risk to the extent such techniques are
utilized. Many of these techniques, such as short sales, borrowing
money for investment, the purchase and sale of put and call options,
investment in restricted securities and foreign securities, the lending
of portfolio securities and trading over a short term period are
considered to be of a speculative nature and to the extent put into
effect, will result in greater turnover of the Fund's portfolio
securities and greater expense than is customary for most mutual funds.
Because of the nature of the Fund, the Fund's shares should not be
considered as a complete investment program. When considering an
investment in the Fund, each investor should take into consideration his
or her investment objectives and present and future financial needs as
the Fund assumes an above average risk of loss. The value of the Fund's
shares tends to fluctuate to a greater degree than the shares of funds
utilizing more conservative investment techniques or those having as
investment objectives, the conservation of capital and/or the
realization of current income. Accordingly, the Fund is not an
appropriate vehicle for a short term investor or for those investors
having immediate financial requirements. Rather, the Fund is designed
for those investors who invest for the long term and have the financial
ability to undertake greater risk in exchange for the opportunity of
realizing greater financial gains in the future.
PORTFOLIO TURNOVER
Because the Fund's investment approach stresses sensitivity to
changes in the current and projected earnings of the companies
represented in its portfolio and the effect of these changes in the
market, the Fund's portfolio turnover rates may vary significantly from
year to year. Moreover, purchases and sales of the Fund's shares may
influence portfolio turnover rates.
The Fund's portfolio turnover rate may vary significantly from year
to year as well as within the year. A 100% turnover rate would occur,
for example, if all the
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securities in the Fund's portfolio were replaced in a period of one
year. A greater portfolio turnover rate reflects a greater number of
securities transactions. The gain realized on a greater number of
portfolio transactions will be subject to tax. The Fund will be liable
for the tax on such gains unless distributed and, if distributed,
shareholders may be proportionately liable (see "Taxes, Dividends and
Capital Gains", page ____). High portfolio turnover involves
correspondingly greater brokerage commission costs to the Fund.
Turnover can be expected to be higher than normal during periods when
market fluctuations are more pronounced. To the extent that the Fund's
portfolio transactions are effected through Bowling Green Securities,
Inc. as broker, any increase in portfolio activity may be beneficial to
that firm (and its owner Hans P. Utsch) because of brokerage commissions
payable in connection therewith. See "Brokerage Allocation" and "Taxes,
Dividends and Capital Gains" on pages ___ and ___ of the Statement of
Additional Information. For 1993, the Fund had a portfolio turnover
rate of 55%, for 1994 of 47% and for 1995 of 60%.
MANAGEMENT OF THE FUND
INVESTMENT ADVISOR
The Board of Directors has overall responsibility for the management
of the Fund. Edgemont Asset Management Corporation, 140 E. 45th Street,
43rd Floor, New York, New York 10017 ("Edgemont"), is the Fund's
investment advisor. Under the terms of the Investment Advisory
Agreement, Edgemont, for the fee described below, provides investment
management services to the Fund. Edgemont is responsible for the
overall management of the Fund's business affairs. Edgemont has served
as investment advisor to the Fund or its predecessor since 1985.
Mr. Hans T. Utsch is Chairman of the Board, a Director and Secretary
and Mr. Lawrence Auriana is a Director, President and Treasurer of
Edgemont. Mr. Utsch has been engaged in the securities business since
1962 as an analyst, money manager and investment banker. Mr. Auriana
has been engaged in the securities business since 1965 as an analyst,
broker and venture capitalist. Messrs. Utsch and Auriana co-founded
Edgemont in August, 1984, and they have been responsible for managing
the Fund's portfolio since March 15, 1985. Neither of them acts as a
portfolio manager of any other fund or investment company.
The Annual Report of the Fund contains additional performance
information; a copy will be made available upon request and without
charge.
Edgemont (i) determines the composition of the Fund's portfolio, the
nature and timing of the changes therein, and the manner of implementing
such changes, and (ii) provides the Fund with such investment advisory,
research and related services as the Fund may, from time to time,
reasonably require for the investment of its funds.
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Edgemont performs such duties in accordance with any directions it
may receive from the Fund's Board of Directors.
The Fund has permitted Edgemont to use Bowling Green Securities,
Inc. ("Bowling Green") as one of the Fund's principal brokers for
exchange traded securities transactions only. Mr. Utsch is the owner of
Bowling Green; Mr. Auriana serves as a registered representative of
Bowling Green. Any use of Bowling Green must be in compliance with
Section 17(e) of the Investment Company Act and the rules thereunder.
Edgemont will receive a fee, payable monthly, for the performance of
its services at an annual rate of 1-1/2% of the average net assets of
the Fund. The fee will be accrued daily for the purpose of determining
the offering and redemption price of the Fund's shares. The advisory
fee is higher than that charged by most other management investment
companies.
The Fund's total expenses for the year ending December 31, 1995,
before expense reimbursement were $54,141,619; the net expenses after
reimbursement were $50,641,249 or 2.17% of average net assets after
expense reimbursement.
PURCHASE OF FUND SHARES
BY MAIL
ALL PURCHASES MADE BY CHECK SHOULD BE IN U. S. DOLLARS AND MADE
PAYABLE TO THE KAUFMANN FUND, INC. OR IN THE CASE OF A RETIREMENT
ACCOUNT THE CUSTODIAN. THIRD PARTY CHECKS EXCEPT THOSE PAYABLE TO AN
EXISTING SHAREHOLDER WHO IS A NATURAL PERSON (AS OPPOSED TO A
CORPORATION OR PARTNERSHIP) AND CHECKS DRAWN ON CREDIT CARD ACCOUNT WILL
NOT BE ACCEPTED.
Shares of the Fund may be purchased at the per share net asset value
(see p. ___) by sending a completed subscription Application (included
in the Prospectus or obtainable from the Fund) to the Transfer Agent,
accompanied by a check payable to The Kaufmann Fund, Inc. in payment for
shares. Subscription Applications sent to the Fund will be forwarded to
the Transfer Agent, and will not be effective until received by the
Transfer Agent. The price at which the shares will be purchased will be
their net asset value as determined after receipt of such subscription
by the Transfer Agent. The minimum initial investment by a shareholder
is $1,500 ($500 for IRA Accounts and accounts opened under the Automatic
Investment Plan) or such lower amount as the Board of Directors of the
Fund may, time to time, establish. Subsequent purchases by mail
(minimum of $100) may be made by sending to the Transfer Agent the stub
from the shareholder statement with the shareholder's full name and
account number along with a check payable to The Kaufmann Fund, Inc.
The Fund will not accept mail orders without payment enclosed, nor will
the Fund accept a conditional purchase order. THE FUND RESERVES THE
RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION.
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BY TELEPHONE (ONLY FOR INVESTORS WHO HAVE MADE A WRITTEN ELECTION TO
DO SO - SEE "GENERAL" BELOW)
Subsequent investments may be made by telephone by calling the
Transfer Agent at (800) 261-0555. Telephone purchase orders from
existing shareholders may be placed in an amount ($1,000 minimum or such
lower amount as may be established by the Board of Directors) not
exceeding $10,000 or seven times the shareholder's then current account
balance, whichever is less. Telephone orders will be taken in dollar
amounts only, for full and fractional shares. Payment for shares
purchased must be received by the Transfer Agent by the seventh day. No
bill will be sent to the investor, and it will be the responsibility of
the investor to make payment within the time limitation described
herein. If payment is not received by the Transfer Agent, the
shareholder's account will be charged for the amount of the purchase.
For assistance, shareholders should call the Transfer Agent at
(800) 261-0555.
Investors desiring to make purchases other than by mail or
telephone, or to purchase Fund shares in excess of the allowable limits
for telephone purchase orders may transmit payment for Fund shares by
bank wire (see "By Bank Wire", below).
ACCURACY OF INVESTOR ACCOUNT INFORMATION
The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may
include, among others, requiring some form of personal identification
prior to acting upon telephonic instructions, providing written
confirmations of all such transactions, and/or tape recording of all
telephonic instructions. ASSUMING PROCEDURES SUCH AS THE ABOVE HAVE
BEEN FOLLOWED, NEITHER BOSTON FINANCIAL DATA SERVICES, INC., THE FUND'S
TRANSFER AGENT, NOR THE FUND WILL BE LIABLE FOR ANY LOSS, COST, OR
EXPENSE FOR ACTING UPON AN INVESTOR'S TELEPHONE INSTRUCTIONS. WE SHALL
HAVE AUTHORITY, AS YOUR AGENT, TO REDEEM SHARES IN YOUR ACCOUNT TO COVER
ANY SUCH LOSS. As a result of this policy, the investor will bear the
risk of any loss unless the Fund has failed to follow procedures such as
the above.
BY BANK WIRE
Shares of the Fund may be purchased by domestic or overseas bank
wire. The wire order must contain registration instructions (i.e., full
names and addresses of all investors, taxpayer identification number,
and the account number). Shareholders opening an account must telephone
in advance to obtain a new account number. The name of the Fund must
appear on the wire for proper credit. The investor must have the bank
wire transmitted to State Street Bank & Trust Co., ABA #011000028, for
credit to Boston Financial Data Services, Inc. A/C #99050874 further
credit
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(Kaufmann/Shareholder's A/C# and name). Wires received by the Bank
will be executed at the Fund's net asset value per share as next
determined after receipt of the wired funds.
For assistance the shareholder should call the Transfer Agent at
(800) 261-0555.
THROUGH BROKER-DEALERS
Investors may, if they so desire, purchase Fund shares through
registered broker-dealers. Such broker-dealers may make a charge to the
investor for their services. Such fees and services may vary in amount
among broker-dealers, who may impose higher initial or subsequent
investment requirements than those established by the Fund.
GENERAL
After an initial investment, a shareholder may participate in the
telephone purchase and redemption service only by making a written
election to do so. The election may be on the initial application form
or by writing to the Fund, with the shareholder's signature guaranteed.
A shareholder who wants to change any telephone service option
previously elected may do so by filing with the Fund a letter with
instructions with the shareholder's signature guaranteed. (For
guarantee instructions, see "Good Order for Redemption Requests" below.)
ORDER NUMBERS ARE ASSIGNED TO TELEPHONE PURCHASE ORDERS IN ORDER TO
DISTINGUISH PAYMENT FOR THOSE PURCHASE ORDERS FROM MAIL PURCHASE ORDERS.
IF AN INVESTOR WHO UTILIZES THE TELEPHONE PURCHASE ORDER SERVICE FAILS
TO INCLUDE THE ORDER NUMBER ON THE PAYMENT FOR SUCH PURCHASE ORDER, THE
INVESTOR SHOULD BE AWARE THAT THE FUND MAY TREAT THIS AS A SEPARATE AND
ADDITIONAL PURCHASE ORDER. IF SUCH AN EVENT OCCURS, RESULTING FROM THE
INVESTOR'S FAILURE TO INCLUDE THE ORDER NUMBER ASSIGNED TO THE PURCHASE
ORDER, THE INVESTOR'S ACCOUNT WILL BE CHARGED FOR ANY LOSS INCURRED FROM
THE CANCELLATION OF THE PURCHASE ORDER. IN THE EVENT THE SHAREHOLDER'S
ACCOUNT BALANCE IS INSUFFICIENT TO COVER THE LOSS, EDGEMONT ASSET
MANAGEMENT CORPORATION WILL REIMBURSE THE FUND FOR THE DIFFERENCE:
CONVERSELY, IF THE CANCELLATION RESULTS IN A GAIN, EDGEMONT ASSET
MANAGEMENT CORPORATION WILL BE ENTITLED TO THE GAIN. SEE "ACCURACY OF
INVESTOR ACCOUNT INFORMATION" PAGE ____.
All checks should be made payable to The Kaufmann Fund, Inc. and
should be drawn on a U. S. bank. Neither the Fund nor the Transfer
Agent will accept checks drawn on a foreign bank unless provision is
made for payment through a U. S. bank in U. S. dollars.
If payment for any purchase order is not received by the Fund or the
Transfer Agent, as specified herein, or if the investor's check is not
honored upon presentment,
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<PAGE>
the order is subject to cancellation by the Fund, and the
purchaser's existing account with the Fund immediately will be charged
for any loss incurred.
Each subscriber will be sent a Confirmation Advice in lieu of a
stock certificate reflecting full and fractional shares purchased,
unless a stock certificate is specifically requested in writing by all
registered owners of such shares with their signatures guaranteed (see
"Good Order for Redemption Requests" p. ___ for information on signature
guarantees). It is recommended to all shareholders that a stock
certificate not be requested unless needed for a specific purpose. This
eliminates the trouble and expense of safeguarding the stock
certificates and the cost of a lost instrument bond in the event of loss
or destruction.
The price for shares purchased will be their net asset value as next
determined after receipt of a subscription at the office of the Transfer
Agent. The net asset value of Fund shares is determined as of the close
of trading on the New York Stock Exchange (which currently is 4:00 P.M.
Eastern time) on each day that the Exchange is open for trading.
Purchase orders, whether by mail or by telephone or wire, which are
received prior to the close of trading on the New York Stock Exchange,
will be executed at the net asset value per share as determined as of
the close of trading on the New York Stock Exchange on that day.
Purchase orders received after the close of trading, or on a day when
the New York Stock Exchange is not open for business, will be executed
at the net asset value per share next determined.
The Fund reserves the right to discontinue the acceptance of
telephone orders, without notice, and to waive minimum purchase
requirements at its discretion. The Fund may also decline to accept any
purchase when, in its judgment, acceptance would not be to the advantage
or in the best interests of existing shareholders and may, on a
case-by-case basis, prohibit or restrict purchase of its shares by an
investor whose activity it deems excessive.
A new account application is included at the end of this Prospectus
or can be obtained by writing directly to the Fund.
NET ASSET VALUE
The Fund determines its net asset value per share by subtracting its
liabilities (including accrued expenses and dividends payable) from its
total assets (the market value of the securities the Fund holds plus
cash and other assets, including dividends and income earned but not yet
received) and dividing the result by the total number of outstanding
shares in the Fund. For purposes of determining the value of the Fund's
portfolio securities, interest will be recorded as accrued and dividends
will be recorded on the ex-dividend date. Foreign securities traded on
foreign exchanges are ordinarily valued at the last quoted sales price
available before the time the Fund's assets are valued.
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The Fund's portfolio securities are valued primarily based on market
quotations, or, if quotations are not available, by a method that the
Board of Directors believes accurately reflects fair value. In
accordance with procedures approved by the Board of Directors, a pricing
service, bank or broker-dealer experienced in such matters may be used
to perform the above-described valuation functions.
ACCOUNT STATEMENTS
The Transfer Agent will send the shareholder a confirmation each
time the shareholder purchases or redeems shares. The Transfer Agent
will also send a statement after the end of each fiscal (calendar) year,
which will show all share transactions including dividends and capital
gains distributions for that year. The Fund will advise the shareholder
annually of how such dividends or distributions are to be characterized
for Federal income tax purposes.
REDEMPTION OF SHARES
GENERAL
Shares may ordinarily be redeemed by mail, telephone, telegram, or
overseas cable. The redemption price will be the net asset value per
share as next determined after receipt of a redemption request in Good
Order by the Transfer Agent (see "Determination of Net Asset Value",
page ____), and may be subject to a redemption fee of 2/10th of 1%.
GOOD ORDER FOR REDEMPTION REQUESTS
Good Order means the request for redemption must include: (1) your
share certificates, if any, endorsed by all registered shareholders for
the account exactly as the shares are registered and the signature(s)
must be guaranteed, as described below; (2) a "letter of instruction",
which is a letter specifying the name of the Fund, the number of shares
to be sold, the name(s) in which the account is registered, and your
account number - your letter of instruction must be signed by all
registered shareholders for the account using the exact names in which
the account is registered (IF SHARE CERTIFICATES ARE NOT BEING
TRANSMITTED, THEN THE SIGNATURE(S) ON THE LETTER OF INSTRUCTIONS MUST BE
GUARANTEED); and (3) other supporting legal documents, as may be
necessary, for redemption requests by corporations, estates, trusts,
guardianships, custodianships, partnerships, pension and profit sharing
plans. Signature guarantees, when required, must include guarantees for
all registered shareholders for the accounts and must be guaranteed by
an eligible guarantor. An eligible guarantor is one that is a
participant in a STAMP Program (a Securities Transfer Agents Medallion
Program). Please call the Transfer Agent at (800) 261-0555 with
questions concerning eligible guarantors.
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<PAGE>
A signature guarantee is a widely recognized way to protect you by
guaranteeing the signature on your request. Signature guarantee(s) will
be accepted from banks, brokers, dealers, municipal securities dealers,
credit unions (if authorized by state law), national securities
exchanges, registered securities associations, clearing agencies and
savings associations. A SIGNATURE GUARANTEE BY A NOTARY PUBLIC WILL NOT
BE ACCEPTED.
A fee will be charged on the redemption of shares equal to 2/10th of
1% of the redemption price of the shares of capital stock of the Fund
being redeemed, if such shares were purchased after February 1, 1985.
The redemption fee is payable to the Fund out of the redemption price
otherwise payable to such shareholders. No such fee may be imposed on
the shares of the Fund purchased on or before February 1, 1985.
Redemption fee proceeds will be applied to the Fund's aggregate expenses
allocable to providing redemption services, including transfer agent
fees, postage, printing, telephone costs and employment costs relating
to the handling and processing of redemptions. Any excess fee proceeds
will be added to the Fund's assets.
Payments for shares redeemed will be made no later than the third
business day after the valuation date unless otherwise expressly agreed
by the parties at the time of the transaction. However, redemption
proceeds will not be transmitted until the investor's personal or bank
check for the purchase of Fund shares has cleared. When share purchases
are paid for by check or periodic automatic investment, redemptions will
not be allowed unless the investment being redeemed has been in the
account for 15 business days. WHERE A SHAREHOLDER SIMULTANEOUSLY
REDEEMS SHARES FOR WHICH PAYMENT HAS CLEARED AND SHARES FOR WHICH
PAYMENT HAS NOT CLEARED, THE SHAREHOLDER AUTHORIZES THE FUND TO DELAY
TRANSMITTAL OF ALL OF THE REDEMPTION PROCEEDS UNTIL ALL PAYMENTS HAVE
CLEARED. Where a shareholder elects to have the redemption proceeds
transmitted directly to the shareholder's predesignated account at a
domestic bank, the proceeds will be sent via ACH. In the event your
bank is not an ACH member, the proceeds will be sent by wire.
Redemptions of less than $1,000 will be sent to your bank by check. The
Transfer Agent will not honor any redemption request that contains a
restriction as to the time, date or share price at which the redemption
is to be effective.
BY MAIL
Shares of the Fund may be redeemed by mail by writing directly to
the Transfer Agent and enclosing the duly endorsed stock certificate, if
one has been issued, with signatures guaranteed. See "Good Order for
Redemption Requests" above. There are no special forms for redemption.
Shareholders residing abroad may obtain a signature verification from
any U.S. Consulate under official seal.
19
<PAGE>
BY TELEPHONE, TELEGRAM OR OVERSEAS CABLE
Shares of the Fund may be redeemed by calling (800) 261-0555, or by
sending a telegram to the Transfer Agent, or an overseas cable. In
order to utilize the procedure for redemption by telephone, telegram or
overseas cable, a shareholder previously must have elected this
procedure in writing, the shareholder's account must have been opened
previously by the shareholder and be reflected as such in the computer
records of the Transfer Agent, the stock certificate for shares being
redeemed must be held by the Transfer Agent, and the redemption proceeds
must be transmitted directly to the shareholder's predesignated account
at a domestic bank (see "Good Order for Redemption Requests" above).
A shareholder may elect at any time to use the telephone, telegram or
overseas cable redemption service. For assistance the shareholder
should call the Transfer Agent at (800) 261-0555. When utilizing the
telephone, telegram or overseas cable redemption service, the
shareholder must give the full name, number of shares to be redeemed and
account number or the redemption request will not be processed. See
"Accuracy of Investor Account Information," p. ____ for information
regarding redemptions by telephone.
Shareholders should understand that with the telephone redemption
option, they may be giving up a measure of security that they might
otherwise have if they were to redeem their shares in writing. In
addition, interruptions in telephone service may mean that a shareholder
will be unable to effect a redemption by telephone when desired.
The Fund reserves the right to change or discontinue without prior
notice, the procedures for or availability of, telephone service for
redemption requests.
REDEMPTION AT THE OPTION OF THE FUND
If the value of the shares in a shareholder's account is less than
$500, the Fund may notify the shareholder that, unless the account is
brought up to $500 in value, it will redeem all the shareholder's shares
and close the account by paying the shareholder the redemption price
(less the redemption fee, if any) and dividends and distributions
declared and unpaid at the date of redemption. The Fund will give the
shareholder thirty days after it sends the notice to bring the account
up to $500 before any action is taken. This minimum balance requirement
does not apply to IRAs and other tax-sheltered investment accounts.
This right of redemption shall not apply if the value of a shareholder's
account drops below $500 as the result of market action.
The Fund reserves the right to do this because of the expense to the
Fund, in relation to the size of the investment, of maintaining small
accounts.
20
<PAGE>
REDEMPTION IN KIND
The Fund has filed a Notification under Rule 18f-1 under the
Investment Company Act, pursuant to which it has undertaken to pay in
cash all requests for redemption by any shareholder of record, limited
in amount with respect to each shareholder during any 90-day period to
the lesser amount of (i) $250,000, or (ii) 1% of the net asset value of
the Fund at the beginning of such election period. The Fund intends to
also pay redemption proceeds in excess of such lesser amount in cash,
but reserves the right to pay such excess amount in kind, if it is
deemed to be in the best interest of the Fund to do so. In making a
redemption in kind, the Fund reserves the right to select from each
portfolio holding a number of shares which will reflect the portfolio
make-up and the value of which will approximate as closely as possible,
the value of the Fund shares being redeemed, or to select from one or
more portfolio investments, shares equal in value to the total value of
the Fund shares being redeemed: any shortfall will be made up in cash.
Investors receiving an in kind distribution are advised that they will
likely incur a brokerage charge on the disposition of such securities
through a broker. The values of portfolio securities distributed in
kind will be the values used for the purpose of calculating the per
share net asset value used in valuing the Fund shares tendered for
redemption.
TAXES, DIVIDENDS AND CAPITAL GAINS
The Fund intends to qualify as a "regulated investment company"
under the Internal Revenue Code, as amended, with the result that
taxable income of the Fund will be reduced by the amount of
distributions to shareholders. The Fund intends to distribute all of
its net investment income and net capital gains, if any, annually. If
necessary to satisfy certain distribution requirements of the Tax Reform
Act of 1986, the Fund may declare special year-end dividend and capital
gains distributions during December. Such distributions, if received by
shareholders by January 31 are deemed to have been paid by the Fund and
received by shareholders on December 31st of the prior year. Such
income dividends and capital gains distributions, as may be paid, will
be reinvested in shares of the Fund at net asset value or, at the
election of each shareholder, paid in cash. Unless the shareholder
specifically instructs otherwise, all such dividends and distributions
will be reinvested in additional shares of the Fund, at net asset value.
Dividends and distributions are taxable to the shareholder whether taken
in cash or reinvested in additional shares.
Distributions of income dividends and short-term capital gains are
taxable to the shareholders as ordinary income. Dividends (but not
capital gains) paid by the Fund qualify for the 70% dividends received
deduction for corporations unless derived from interest income or
foreign source income. Distributions from long-term capital gains,
whether paid in cash or additional shares of the Fund, are taxable to
the shareholder for Federal income tax purposes as a long-term capital
gain, regardless of the length of time Fund shares have been held by the
shareholder.
21
<PAGE>
If you purchase shares shortly before the record date for a dividend
or a capital gains distribution, a portion of your investment will be
returned to you as a taxable distribution, whether you elect to receive
your dividends and distributions in additional Fund shares or take them
in cash.
Shareholders may be proportionately liable for taxes on income and
gains of the Fund, but shareholders not subject to tax on their income
will not be required to pay tax on amounts distributed to them.
Congress has mandated that if any shareholder fails to provide and
certify to the accuracy of his or her social security number or other
taxpayer identification number, the Fund will be required to withhold
31% of all dividends, distributions and payments, including redemption
proceeds, to such shareholder as a backup withholding procedure. In
addition, shareholders will be subject to a fine payable to the Internal
Revenue Service.
Accordingly, in the event a shareholder fails to furnish and certify
a taxpayer identification number, or the Internal Revenue Service
notifies the Fund that a shareholder's taxpayer identification number is
incorrect, or that withholding is otherwise required, the Fund will
commence withholding on such shareholder's account. Once withholding is
established, all withheld amounts will be paid to the Internal Revenue
Service, from whom such shareholder should seek any refund. If
withholding is commenced with respect to any shareholder account, the
shareholder should consult with the shareholder's attorney or tax
advisor or contact the Internal Revenue Service directly.
Information as to the tax status of dividends and distributions paid
to the shareholders will be furnished annually by the Fund.
Shareholders should consult their own tax advisers with respect to any
applicable state and local taxes on such dividends and distributions.
CAPITAL STOCK
The Fund, a Maryland corporation, has an authorized capitalization
of one billion shares of capital stock, par value $0.10 per share.
Shares of stock issued by the Fund are all of one class, are designated
capital stock, are redeemable by the Fund at the option of the holder of
the stock and have equal dividend, liquidation and voting rights, each
share being entitled to one vote. There are no pre-emptive or other
special rights outstanding or attached to any of the Fund's shares, nor
are there any restrictions on the right to freely retain or dispose of
such shares.
Maryland law does not require the holding of annual shareholders'
meetings unless otherwise required by law. However, 10% of the
outstanding voting securities
22
<PAGE>
of the Fund shall have the right to call a shareholders' meeting for
purposes of voting on the removal of a director.
The shares have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of
Directors can elect all of the Fund's Directors if they choose to do so,
and, in such event, the holders of the remaining less than 50% of the
shares voting for the election of Directors will not be able to elect
anyone to the Board of Directors.
Shareholders having questions concerning the Fund or their accounts
should call the Transfer Agent at (800) 261-1700.
SPECIAL INVESTOR SERVICES
THE KAUFMANN/RESERVE FUND MONEY MARKET SWITCH PLAN
ONLY REGULAR AND IRA ACCOUNTS MAY PARTICIPATE
Shareholders may elect to participate in the Kaufmann/Reserve Fund
Money Market Switch Plan (the "Switch Plan" or "Plan"), and thereby have
the proceeds ($1,000 minimum, unless lowered by the Fund's Board of
Directors) from the redemption of their Fund shares invested directly in
shares of The Reserve Fund, Inc. ("Reserve"), or have the proceeds from
the redemption of the Reserve shares reinvested directly in shares of
the Fund. Investors may elect to participate by completing the portion
of the application form which refers to the Switch Plan. The Fund and
Reserve are not responsible to Switch Plan participants for purchase or
redemption delays under the plan as long as the Fund and Reserve
transmit the proceeds in accordance with written arrangements between
the Fund and Reserve in connection with the Plan.
For Shareholders who have elected to participate in the Plan, the
"switch" from Fund shares into Reserve shares may be made by calling the
Transfer Agent at (800) 261-1700. The proceeds, less the combined
amount of 2/10th of 1% of such redemption proceeds retained by the Fund
and Transfer Agent charges, if any, will be wired to Reserve on the
seventh day following the "switch" request. Reinvestment in Fund shares
will not be possible until the eighth day after the date of the "switch"
from the Fund to Reserve.
For reinvestment in shares of The Kaufmann Fund, Inc., call the
Transfer Agent at (800) 261-0555 and instruct it to redeem your Reserve
shares and reinvest the proceeds in your open account with The Kaufmann
Fund, Inc. The limitation described on page ____ for telephone purchase
orders does not apply to these reinvestment requests, there being no
maximums for reinvestments from Reserve. However, any investor who
deviates from the previously described procedure for reinvestment will
be, among other things, subject to the maximums described on page ____
for telephone purchase orders. Any such reinvestment request received
by Fund's transfer agent
23
<PAGE>
prior to 4:00 p.m. East Coast Time, will be processed at that day's
closing net asset value for Fund shares; requests received after
4:00 p.m. East Coast time will be processed at the next day's net
asset value. For Reserve yield information, the number to call
is (800) 637-1700.
For Federal income tax purposes, any such switch into Reserve will
be regarded as a sale of Fund shares and the purchase of the other. The
Fund and Reserve retain the right to limit the number of times the
"switch" may be used by any shareholder within a specified period of
time, and the Plan may be terminated at any time by either the Fund or
Reserve.
AUTOMATIC INVESTMENT PLAN
You can make regular investments in The Kaufmann Fund, Inc. with an
Automatic Investment Plan by completing the appropriate section of the
account application and attaching a voided personal check. Investments
may be made monthly by automatically deducting $50 or more from your
bank checking account. You may change the amount of your monthly
purchase at any time. There is a $500 minimum initial investment
requirement for automatic investment plans. Shares will be purchased at
the price next determined following receipt of the order by the Transfer
Agent. You may cancel the Automatic Investment Plan at any time without
payment of a cancellation fee. You will receive a confirmation from the
Transfer Agent for every transaction, and a debit entry will appear on
your bank statement reflecting a charge to your bank account.
Upon completion of the necessary authorization form which is at the
back of this prospectus or which may be obtained from the Transfer Agent
by calling (800) 261-0555 and the forwarding of such form to the
Transfer Agent, the shareholder's bank account will be debited for each
investment being made to purchase Fund shares at net asset value.
Shares may be redeemed by telephone if the Shareholder elects that
option on the Account Application. The Shareholder may have the
proceeds deposited directly in a checking or savings account previously
designated on the Account Application. Under most circumstances,
payments will be transmitted on the third business day following receipt
of a valid request for redemptions. ACH redemption requests may be made
by Shareholder by calling Boston Financial Data Services, Inc. at (800)
261-0555. Shareholders may close their accounts by telephone.
SYSTEMATIC WITHDRAWAL PLANS
If you own shares of The Kaufmann Fund, Inc. worth $5,000 or more,
you may periodically have proceed checks sent from your account to you,
to a person named by you, or to your bank checking account. Your
Systematic Withdrawal Program
24
<PAGE>
payments are drawn from share redemptions. If Systematic Withdrawal
Program redemptions exceed income dividends earned on your shares, your
account eventually may be exhausted. Shareholders considering this Plan
should first contact the Fund's Transfer Agent by calling (800) 261-0555
for details concerning this Plan. An investor may initiate such a Plan
by completing the Systematic Withdrawal Plan Section of the Application
which is contained at the back of this Prospectus.
RETIREMENT PLANS AND IRA ACCOUNTS
Shares of the Fund may be purchased directly by existing retirement
plans which allow such investments.
In addition, qualified individuals may establish an Individual
Retirement Account ("IRA") to be funded with shares of the Fund. State
Street Bank and Trust Company acts as custodian for any IRAs thus created.
For further information, an interested person should call Boston
Financial Data Services at (800) 261-0555.
25
<PAGE>
SHAREHOLDER STATEMENTS AND REPORTS
Each time you buy or sell shares or reinvest a dividend or capital
gains distribution in the Fund, you will receive a statement confirming
such transaction and listing your current share balance with the Fund.
You will also receive annual and semi-annual reports and year-end tax
information about your account(s).
DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Distribution Plan"),
pursuant to which the Fund may incur distribution expenses of up to .75%
per annum of the Fund's average daily net assets.
The Distribution Plan provides that the Fund may finance activities
which are primarily intended to result in the sale of the Fund's shares,
including but not limited to, advertising, printing and mailing of
prospectuses and reports to other than existing shareholders; printing
and distribution of sales literature, and the compensation of persons
primarily engaged in the sale and marketing of the Fund's shares.
SERVICE FEES
The Fund may also pay continuing service fees to broker dealers for
personal service and for the maintenance of shareholder accounts. Such
payments shall not exceed .25% per annum of the Fund's average daily net
assets.
TRANSFER AGENT AND CUSTODIAN
Boston Financial Data Services, Inc., Post Office Box 8331, Boston,
MA 02266-8331 acts as shareholder servicing and transfer agent for the
Fund. State Street Bank and Trust Company, 225 Franklin Street, Boston,
MA 02110 serves as custodian of the Fund's assets, including its
portfolio securities. QUESTIONS CONCERNING SHAREHOLDER ACCOUNTS SHOULD
BE DIRECTED TO BOSTON FINANCIAL DATA SERVICES, INC. BY CALLING (800)
261-0555.
26
<PAGE>
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE FOR 1995
The Fund's performance last year reflected the same investment
strategy that we have pursued since we started managing the Fund's
portfolio in 1986. We seek out companies with rapidly growing sales and
earnings, that have positions of leadership in expanding markets, with
proprietary products or know-how, proven management and strong balance
sheets. We invest in such true growth companies for the long-term,
frequently establishing an initial position as a result of an IPO
(Initial Public Offering) and adding to it as we gain more confidence in
the company's management and strategy.
During 1994, the Fund achieved substantial gains in many of its core
holdings, including Altera (programmable logic integrated circuits),
Breed Technology (auto crash sensors & airbag systems), Exide (lead-acid
batteries), Infosoft (software tools for text management), MediSense
(self-administered blood glucose monitoring systems), Microchip
Technology (field programmable 8-bit microcontrollers), Nukote Holdings
(office printing cartridges) and Sun Healthcare (nursing homes, subacute
care and rehab therapy). We took advantage of market weakness in the
Spring and early Summer to add to these positions, and were rewarded for
our timing when prices rebounded in the latter half of the year.
The advantage of investing in small growth companies is clear to us.
Historically, they have generated higher returns than large companies.
What is important is selecting the right companies. In our view, there
is no substitute for personally meeting with the management of
companies, comparing them to their competitors, and carefully analyzing
the fundamentals of their business. As the managers of the Kaufmann
Fund, this is what we do every working day, with the sole aim of
continuing to provide you, the individual investor, with superior rates
of return over the long-term.
27
<PAGE>
<PAGE>
DESCRIPTION OF GRAPHIC MATERIAL
Graphic material in the form of a comparison of the S&P 500 Index,
the NASDAQ Index and the Kaufmann Fund has been included in the paper
copy of Post-Effective Amendment No. 45. In accordance with the provisions
of Regulation 304, here follows a fair and accurate narrative description
of the graphic material.
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KAUFMANN 36.89 8.99 18.18 11.32 79.18 -6.14 46.85 58.57 -37.16 1.80
S&P 37.53 1.31 10.06 7.61 30.40 -3.11 31.63 16.56 5.25 9.80
NASDAQ 39.92 -3.20 14.75 15.45 56.84 -17.80 19.26 15.41 -5.26 -2.98
</TABLE>
The annual total return figures for the Kaufmann Fund, Inc., for the
NASDAQ Index and for the S&P 500 Index are presented graphically on an
index scale ranging from 0 to 500 and a year scale for the years ending
12/31/85 (equals zero) through 12/31/95. The performance of the S&P
Index commences at 100 on 12/31/85. Whereas the performance of the
NASDAQ Index and the Fund commences 12/31/86. As of 12/31/95 the S&P
Index is shown at 370, the NASDAQ Index at 250 and the Fund at 500.
<PAGE>
PART B
<PAGE>
THE KAUFMANN FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
___________________________________
This Statement of Additional Information (the "Statement"), which is
not a prospectus (but which is incorporated into the Prospectus),
supplements and should be read in conjunction with the current
prospectus of The Kaufmann Fund, Inc. (the "Fund"), dated March 11, 1996,
as it may be revised from time to time. To obtain a copy of the Fund's
prospectus, please write to the Fund at 140 East 45th Street, 43rd
Floor, New York, New York 10017 or call 212-922-0123.
Date of Statement of Additional Information: March 11, 1996.
<PAGE>
TABLE OF CONTENTS
Page
----
General Information and History . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . 4
Management of the Fund . . . . . . . . 5
Principal Holders of Securities . . . . . . 7
Investment Advisory Services . . . . . . . 7
Brokerage Allocation . . . . . . . . 9
Potential Conflicts . . . . . . . . . 11
Distribution Plan . . . . . . . . . 11
Special Investor Services . . . . . . . 12
Purchase and Redemption of Shares . . . . . . 14
Taxes, Dividends and Capital Gains . . . . . 14
Custodian . . . . . . . . . . . 15
Auditor . . . . . . . . . . . 15
Financial Statements . . . . . . . . 15
Performance Information . . . . . . . . 15
Additional Performance Information for the Fund . . . 17
<PAGE>
GENERAL INFORMATION AND HISTORY
General information relating to the Fund and its history will be
found on p. ___ of the prospectus under the caption "The Fund."
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective and certain of its investment
policies are described on pages ___ through ___ of the Fund's
Prospectus.
In addition to the objective and policies discussed in the
Prospectus, the Fund has adopted the following investment policies and
techniques.
Securities of Other Investment Companies - The Fund may invest up to
10% of the value of its total assets in the securities of other
registered investment companies (open end or closed end), provided that
the Fund may not purchase (i) more than 3% of the voting securities of
any one investment company or (ii) securities of any investment company
having an aggregate value in excess of 5% of the total value of the
assets of the Fund. All such securities must be acquired by the Fund in
the open market, in transactions involving no commissions or discounts
to a sponsor or dealer other than customary brokerage commissions. The
Fund will not invest in any investment company having a contingent
deferred sales charge, but will not regard redemption fees of up to
2/10ths of 1% of the investment as such a charge.
Repurchase Agreements - Repurchase agreements are arrangements in
which banks, broker/dealers and other recognized financial institutions
sell U.S. government securities or certificates of deposit to the Fund
and agree at the time of sale to repurchase them at a mutually agreed
upon time and price within one year from the date of acquisition. The
Fund's custodian will take possession of the securities subject to
repurchase agreements. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less
than the repurchase price on a sale of such securities. In the event
that such a defaulting seller filed for bankruptcy or became insolvent,
disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities
subject to repurchase agreements, a court would rule in favor of the
Fund and allow it to retain or dispose of such securities. The Fund
will enter into repurchase agreements only with banks and other
recognized financial institutions such as broker/dealers which are found
by the Fund's investment adviser to be creditworthy. The Fund's
investment adviser monitors the creditworthiness of the other parties to
repurchase agreements.
Repurchase agreements usually are for short periods such as one
week, but could be longer. The Fund will not enter into repurchase
agreements of more than seven days duration if more than 10% of its net
assets would be invested in such
1
<PAGE>
repurchase agreements and in restricted securities. Repurchase
agreements are considered to be loans by the Fund under the Investment
Company Act of 1940.
Options Contracts and Risks -
-----------------------------
(i) General
Puts and calls are relatively short-term option contracts
(rarely for periods longer than nine months) acquired at a cost or
"premium" to the Fund or written by the Fund in return for a premium, in
each case whether or not the option is exercised during its terms.
A call option gives the purchaser of the option the right
to buy, and the writer the obligation to sell, the underlying security
at the exercise price during the option period. Conversely, a put
option gives the purchaser the right to sell, and the writer the
obligation to buy, the underlying security at the exercise price during
the option period.
A put purchased by the Fund constitutes a hedge against a
decline in the price of a security owned by the Fund, it may be sold at
a profit or loss depending upon changes in the price of the underlying
security, it may be exercised at a profit provided that the amount of
the decline in the price of the underlying security below the exercise
price during the option period exceeds the option premium, or it may
expire without value. A call constitutes a hedge against an increase in
the price of a security which the Fund has sold short, it may be sold at
a profit or loss depending upon changes in the price of the underlying
security, it may be exercised at a profit provided that the amount of
the increase in the price of the underlying security over the exercise
price during the option period exceeds the option premium, or it may
expire without value. The maximum loss exposure involved in the
purchase of an option is the cost of the option contract.
(ii) Covered Option Writing
So long as the obligation of the writer of a put or call
option continues, he may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring the writer to
deliver, in the case of a call, or take delivery of, in the case of a
put, the underlying security against payment of the exercise price.
This obligation terminates upon expiration of the option, or such
earlier time at which the writer effects a closing purchase transaction
by repurchasing the option which he previously sold. Once a writer has
been assigned an exercise notice in respect to an option, he is
thereafter not allowed to repurchase that option. To secure his
obligation to deliver the underlying security in the case of a call
option, or to pay for the underlying security in the case of a put
option, a writer is required to deposit with a custodian in escrow the
underlying security or other assets and to mark the
2
<PAGE>
same to market, all in accordance with the rules of the clearing corporations
and of the exchanges and securities laws.
The principal reason for writing call options on a
securities portfolio is to attempt to realize, through the receipt of
premiums, a greater return than would be realized on the securities
alone. The covered call option writer has, in return for the premium,
given up the opportunity for profit from a price increase in the
underlying security above the exercise price so long as the obligation
as a writer continues, but has retained the risk of loss, should the
price of the security decline. Conversely, the put option writer has,
in the form of the premium, gained a profit as long as the price of the
underlying security remains above the exercise price, but has assumed an
obligation to purchase the underlying security from the buyer of the put
option at the exercise price, even though the security may fall below
the exercise price, at any time during the option period. The option
writer has no control over when he may be required to sell his
securities in the case of a call option or to purchase securities in the
case of a put option, since he may be assigned an exercise notice at any
time prior to the termination of his obligation as a writer. If an
option expires, the writer realizes a gain in the amount of the premium.
Such a gain, of course, may in the case of a covered call option, be
offset by a decline in the market value of the underlying security
during the option period. If a call option is exercised, the writer
realizes a gain or loss from the sale of the underlying security. If a
put option is exercised, the writer must fulfill his obligation to
purchase the underlying security at the exercise price, which will
usually exceed the then market value of the underlying security.
(iii) Risks Relating to Options
An option position may be closed out only on an exchange
which provides a secondary market for an option of the same series.
Although the Fund will generally purchase or write only those options
for which there appears to be an active secondary market, there is no
assurance that a liquid secondary market on an exchange may exist. In
such event, it might not be possible to effect closing transactions in
particular options, with the result that the Fund would have to exercise
its options in order to realize any profit and would incur brokerage
commissions upon the exercise of call options and upon the subsequent
disposition of underlying securities acquired through the exercise of
call options or upon the sale of underlying securities pursuant to the
exercise of put options. If the Fund, as a covered call option writer,
is unable to effect a closing purchase transaction in a secondary
market, it will not be able to sell the underlying security until the
option expires or it delivers the underlying security upon exercise.
Reasons for the absence of a liquid secondary market on
an exchange include the following: (a) there may be insufficient trading
interest in certain options; (b) trading halts, suspensions, or other
restrictions may be imposed with respect to particular classes or series
of options or underlying securities; (c) unusual or
3
<PAGE>
unforeseen circumstances may interrupt normal operations on an
exchange; (d) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (e) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in
which event, the secondary market on that exchange (or in the class or
series of options) would cease to exist, although outstanding options on
that exchange that had been issued by a clearing corporation as a result
of trades on that exchange would continue to be exercisable in
accordance with their terms.
There is no assurance that higher than anticipated
trading activity or other unforeseen events might not, at times, render
certain of the facilities of any of the clearing corporations
inadequate, and thereby result in the institution, by an exchange, of
special procedures which may interfere with the timely execution of
customers' orders.
The amount of the premiums which the Fund may pay or
receive may be adversely affected as new or existing institutions,
including other investment companies, engage in or increase their option
purchasing and writing activities.
For additional information concerning options see p. ___
of the Fund's prospectus.
INVESTMENT RESTRICTIONS
The Fund has also adopted the following investment
restrictions, which cannot be changed without the approval of the
holders of a majority of its shares. The term "majority" means the
lesser of (1) 67% of the Fund's shares present at a meeting if the
holders of more than 50% of the outstanding shares are present in person
or by proxy, or (2) more than 50% of the Fund's outstanding shares.
These restrictions provide that the Fund shall not:
1. Purchase securities on margin from brokers.
2. Invest in commodities, commodity contracts or real
estate, or limited partnership interests in real estate, except that the
Fund may invest in readily marketable securities of real estate trusts
or companies, and in master limited partnership interests traded on a
national securities exchange.
3. Borrow money, except from banks in an amount which will
not cause the Fund's net assets (including the amount borrowed) to be
less than 300% of such borrowed amount and then providing that (i) if
the Fund's assets become less than three times the amount of the Fund's
bank borrowing, the Fund will, within three days (not including
Saturdays, Sundays or holidays) reduce its bank borrowings to the
4
<PAGE>
extent required to restore such 300% coverage and (ii) such bank
borrowing may be collateralized by the deposit of portfolio
securities with, or the segregation of such securities for the account
of, the lending bank, but in no case will such bank borrowings exceed
50% of the net assets of the Fund or the value of such pledged
securities exceed 75% of the total assets of the Fund.
4. With respect to 50% of the value of its total assets,
invest more than 5% of the value of its total assets in any one issuer,
excluding United States Government securities, or purchase more than 10%
of the outstanding voting securities of any one issuer.
5. Participate in a joint securities trading account.
6. Issue senior securities except to the extent of borrowings.
7. Underwrite the securities of other issuers.
8. Purchase the securities of an issuer, if any affiliate,
(including the Fund's officers and directors) who individually own more
than 1/2 of 1% of the securities of such issuer, together own more than
5% of the securities of such issuer.
9. May not invest 20% or more of its net assets in securities
of issuers with an operating history of less than three year continuous
operation.
10. Invest in oil, gas or mineral leases.
MANAGEMENT OF THE FUND
The Fund's Directors are responsible for the Fund's
management, and they have certain fiduciary duties and obligations to
the Fund and its shareholders under the laws of the State of Maryland
and applicable federal securities laws. The information provided below
sets forth biographical information regarding each Director. Directors
who are "interested persons" of the Fund, as that term is defined by
Section 2(a)(19) of the Investment Company Act of 1940 are marked by an
asterisk. Generally speaking, the term "interested persons" includes
persons who have close family or substantial financial or professional
relationships with investment companies, their investment advisors,
principal underwriters, officers and employees. The address of the
Directors who are "interested persons" is 140 East 45th Street, 43rd
Floor, New York, New York 10017.
Directors and Officers of the Fund
- ----------------------------------
*Hans P. Utsch; Director, President and Treasurer
140 East 45th Street, 43rd Floor, New York, New York 10017
5
<PAGE>
He is Chairman of Edgemont Asset Management
Corporation, the Fund's investment manager and
has acted as such, since its founding in August,
1984. He is a co-portfolio manager of the Fund
together with Mr. Auriana. Mr. Utsch holds a BA
from Amherst College and an MBA from Columbia University.
Mr. Utsch is the principal shareholder of Bowling Green
Securities, Inc., a registered broker/dealer. For over the
last five years he has managed that firm's investment port-
folio. Age: 59.
*Lawrence Auriana; Chairman of the Board and Director, Vice President
and Secretary
140 East 45th Street, 43rd Floor, New York, New York 10017
Mr. Auriana is President of Edgemont Asset
Management Corporation, the Fund's investment manager,
and has acted as such, since its founding in August, 1984.
He is co-portfolio manager of the Fund together with
Mr. Utsch. Mr. Auriana holds a BA from Fordham University
and attended New York University's Graduate School of Business.
Age: 52.
Leon Lebensbaum; Director
3601 Hempstead Turnpike, Levittown, New York 11756
Mr. Lebensbaum, an attorney and a certified public
accountant, has been in private practice since 1970.
He is currently a general partner in the accounting
firm of Lebensbaum and Russo, an accounting firm.
Prior thereto he was a Special Agent in the Intelligence
Division of the Internal Revenue Service. Age: 72.
Gerard M. Grosof; Director
31 Prospect Place, Brooklyn, New York 11217
Mr. Grosof is a high-technology venture capitalist. He
is a Director of Quantametrics, Inc. From 1982-1985
he was Vice President, Treasurer and a Director of
Memory Metals, Inc., a metal alloy firm. From 1980 to
1982 he served as an officer of CG Technology Corporation,
a contract research and development firm. Age: 65.
6
<PAGE>
Pauline Gold, Esquire; Director
150 Bay Street, Staten Island, New York 10301
Mrs. Gold in an attorney and, since 1964, has been
engaged in the private practice of law. Age: 57.
Roger E. Clark; Director
116 Juniper Road, New Canaan, Connecticut 06840
Mr. Clark is President of Teleproducts Corporation
Consulting, which is involved in the business of
telephone-computer interfacing. During the period
from 1980 to June 1987, he was a marketing executive
for Xerox Corporation. Age: 61.
Remuneration of Directors and Officers
- --------------------------------------
The Directors, other than Messrs. Utsch and Auriana,
presently receive an annual retainer of $15,000 plus $2,000 for each
Board of Directors' Meeting or Committee Meeting attended, plus
expenses. Directors fees for the year ended December 31, 1995 totalled
$101,500.
*Interested Persons
- -------------------
Hans P. Utsch, Fund President and Treasurer, and Lawrence
Auriana, Fund Vice President and Secretary, are also the Chairman of the
Board and President, respectively, of Edgemont Asset Management
Corporation ("Edgemont") and are its sole shareholders. As such, they
are "interested persons" of the Fund.
PRINCIPAL HOLDERS OF SECURITIES
At the close of business on December 31, 1995, no person was
known by the Fund to own, of record or beneficially, more than 5% of the
Fund's outstanding shares. No person controls the Fund.
INVESTMENT ADVISORY SERVICES
Edgemont Asset Management Corporation (hereafter sometimes
"Edgemont"), a New York corporation organized in August 1984, having its
principal office at 140 E. 45th Street, 43rd Floor, New York, New York
10017, presently serves as the Fund's investment advisor. Edgemont does
not serve as investment advisor to any other investment company. Messrs
Utsch and Auriana are control persons of Edgemont.
7
<PAGE>
The Investment Advisory Agreement was approved for an
additional one-year term by a majority of the Fund's Board of Directors
including a majority of those Directors who are not interested persons
(as that term is defined in the Investment Company Act of 1940) at a
meeting held on October 6, 1995 called for the purpose of voting on such
Agreement. It will continue in effect until October 30, 1996 and
thereafter for successive annual periods provided that such continuance
is specifically approved at least annually by (a) the Fund's Board of
Directors, or (b) the vote of a majority of the Fund's outstanding
voting shares; provided, that in either event, the continuance is also
approved by a majority of those Directors who are not interested persons
of the Fund or Edgemont, cast in person at a meeting called for the
purpose of voting on such approval. The Investment Advisory Agreement
may be terminated at any time, without penalty, on sixty days' prior
written notice, by the vote of a majority of the Fund's outstanding
voting shares or by the vote of a majority of the Fund's Board of
Directors or by Edgemont, and will terminate automatically in the event
of its assignment.
It is Edgemont's responsibility to arrange for the purchase
and sale of the Fund's portfolio securities.
Edgemont furnishes the Fund, at no cost, with the services of
those of Edgemont's officers and full-time employees who may be duly
elected executive officers or directors of the Fund.
The Fund shall be responsible for effecting sales and
redemptions of its shares, for determining the net asset value thereof
and for all of its other operations and shall pay all administrative and
other costs and expenses attributable to its operations and
transactions, including, without limitation, transfer agent and
custodian fees; legal, administrative and clerical services; rent not to
exceed fair market value for its office space and facilities; auditing;
preparation, printing and distribution of its prospectuses, proxy
statements, stockholders reports and notices; cost of supplies and
postage; Federal and state registration fees; Federal, state and local
taxes; the fees of directors who are not interested persons; interest on
its bank loans; and brokerage commissions.
Edgemont received $10,119,921 and $18,927,894 and $35,051,628
in management fees for 1993, 1994, and 1995 respectively.
Edgemont has agreed that if, in any fiscal year, the Fund
shall qualify its shares for sale in any jurisdiction, the applicable
statutes or regulations of which expressly limit the amount of the
Fund's total annual expenses, Edgemont shall reduce its annual
investment advisory fee to the extent that the Fund's total annual
expenses as a percentage of average net assets (other than brokerage
commissions and other capital items, interest, taxes, extraordinary
items and other excludable items, charges, costs and expenses) exceed
the percentage limitations imposed on the Fund by the most
8
<PAGE>
stringent regulations of any such jurisdiction, so long as the Fund
remains so qualified in such jurisdiction. California presently
limits expenses to 2-1/2% of the first $30 million of the
average net assets of the Fund, 2% of the next $70 million and 1-1/2% of
all in excess of $100 million. California law permits the amount of the
distribution and service fees payable by the Fund to be excluded from
total annual expenses. Fees reimbursed to the Fund for the year 1993
were $1,106,791, for 1994 were $1,990,108, and for 1995 were $3,500,370.
BROKERAGE ALLOCATION
Hans P. Utsch and Lawrence Auriana, sole shareholders of
Edgemont, the Fund's investment advisor, are primarily responsible for
placing the portfolio brokerage business of the Fund.
In all brokerage orders, the Fund will seek the most
favorable prices and executions. The determination of what may
constitute the most favorable price and execution in a brokerage order
involves a number of factors, including the overall direct net economic
result to the Fund (involving both price paid or received, and any
commissions or other costs paid), and the efficiency with which the
transaction is effected. The sale of Fund shares may be considered when
determining the firms which are to execute brokerage transactions for
the Fund. In addition to considering a broker's execution capacity and
price, Edgemont may consider the brokerage and research services (as
those terms are defined in Section 28(e) of the Securities Exchange Act
of 1934) provided to the Fund. Edgemont is authorized to pay to a
broker-dealer who provides such brokerage and research services a
commission for executing a particular transaction for the Fund which is
in excess of the amount of commission another broker- dealer would have
charged for effecting the transaction if Edgemont determines, in good
faith, that such commission was reasonable in relation to the value of
the brokerage and research services provided by such broker-dealer,
viewed in terms of the particular transaction or in terms of the overall
responsibilities of Edgemont to the Fund.
For purposes of the above, a person provides brokerage and
research services insofar as it: (1) furnishes service, either directly
or through publications or writings, as to the value of the securities,
the advisability of investing in, purchasing or selling securities and
the availability of securities or purchasers or sellers of securities;
(2) furnishes analyses and reports concerning issuers, industries,
securities, economic factors and tends, portfolio strategy and the
performance of accounts; (3) effects securities transactions and
performs functions incidental thereto (such as clearance, settlement or
custody) or required in connection therewith by rules of the Securities
and Exchange Commission or the NASD of which such person is a member or
is a person associated with an NASD member firm or in which such person
is a participant.
9
<PAGE>
Since July 1, 1992, the Fund has permitted Edgemont to use
Bowling Green Securities, Inc. ("Bowling Green Securities") as one of
the Fund's principal brokers for exchange traded securities transactions
only. Hans P. Utsch is the owner of Bowling Green Securities; Lawrence
Auriana is affiliated with Bowling Green Securities as a registered
representative. Any such use must be in compliance with Section 17(e)
of the Investment Company Act and Rule 17e-1 thereunder and of the Rules
thereunder.
In accordance with Section 17(e) of the Investment Company
Act and Rule 17e-1 thereunder and the Rules thereunder, Bowling Green
Securities may act as a broker in connection with the sale of various
exchange traded securities to or by the Fund. In placing orders with
Bowling Green Securities for brokerage transactions for the Fund,
pursuant to standards adopted by the board of Directors of the Fund,
Edgemont must ascertain that any commissions, fees or other remuneration
paid to Bowling Green Securities are reasonable and fair compared to the
commissions, fees or other remuneration paid to other brokers in
connection with comparable transactions involving similar securities
being purchased or sold on a securities exchange during a comparable
period of time.
Bowling Green Securities is required to provide regular
brokerage services to the Fund at competitive rates that will
demonstrably be proper under the circumstances and in accordance with
Section 11(a) of the Securities Exchange Act of 1934. Bowling Green
Securities is not a member of a national securities exchange, and thus
is not, at present, subject to any limitations under Section 11(a).
However, that Section authorizes the Securities and Exchange Commission
to regulate or prohibit broker-dealers such as Bowling Green Securities
in or from effecting transactions in securities owned by an account such
as the Fund, over which the principals of Bowling Green Securities have
investment discretion. To date, the Commission has not seen fit to do
so. Bowling Green Securities cannot buy or sell portfolio securities as
principal from or to the Fund.
To the extent that portfolio transactions are effected
through Bowling Green Securities as broker, any increase of portfolio
activity will be beneficial to that firm (and its owner and principal
employee, respectively, Messrs. Utsch and Auriana), because of
brokerage commissions payable in connection therewith.
The Fund is also permitted to purchase underwritten
securities during the existence of an underwriting syndicate of which
Bowling Green Securities is a member, subject to restrictions of
applicable law and the Fund's policies.
During 1993 and 1994, the Fund paid $3,337,777 and
$3,370,645, respectively, in brokerage commissions. Of these amounts
$73,216 in 1993 and $173,360 in 1994 were paid to Bowling Green
Securities. During 1995, total brokerage commissions in the amount of
$4,530,898 were paid on total transactions of
10
<PAGE>
$1,137,807,812. Of the total amount of commissions paid, 1.13%
was paid to Bowling Green Securities on .89% of the total
portfolio transactions effected. Of the $51,020 in commissions paid to
Bowling Green Securities, $15,850 was paid to Herzog Heine Geduld, the
clearing broker for Bowling Green Securities.
The Fund's Board of Directors has established Rule 17e-1
conditions and procedures (see above) for the use of Bowling Green
Securities. The Board also determined that the Fund's independent
public accountants should review the exchange trades executed by Bowling
Green Securities at the end of each quarter and report the results of
the survey to the Board at its next succeeding meeting. The Board
continues to review the appropriateness of the conditions and procedures
no less frequently than annually.
POTENTIAL CONFLICTS
Hans P. Utsch and Lawrence Auriana each is (1) Director and
Officer of the Fund; (2) a Director and Officer of Edgemont, the Fund's
investment advisor; (3) an employee (and in Mr. Utsch's case, the owner)
of the broker-dealer to whom a portion of the Fund's brokerage is being
directed; (4) a controlling principal in the Fund's investment decision
making process.
These affiliations of Messrs. Utsch and Auriana create for
each of them an inherent potential conflict of interest. The Fund's
Directors who are not interested persons are aware of these potential
conflicts but do not presently perceive them as detrimental to the Fund.
DISTRIBUTION PLAN
The Fund has adopted a distribution plan (the "Distribution
Plan"), under the terms of which the Fund may incur distribution
expenses of up to .75% per annum of the Fund's average daily net assets.
The Distribution Plan has been approved by the Fund's Board
of Directors, including by all of the "Rule 12b-1 Directors" ("Rule
12b-1 Directors" are those directors who are not "interested" persons of
the Fund as defined in the Investment Company Act of 1940, and who have
no direct or indirect financial interest in the Distribution Plan or any
related agreement). The Distribution Plan has been approved for an
additional term ending October 30, 1996, unless earlier terminated by a
vote of a majority of the Rule 12b-1 Directors, or by vote of a majority
of the Fund's outstanding shares.
The Distribution Plan provides that the Fund may finance
activities which are primarily intended to result in the sale of the
Fund's shares, including but not limited to, advertising, printing and
mailing of prospectuses and
11
<PAGE>
reports for other than existing shareholders, printing and
distribution of sales literature, and the compensation of persons
primarily engaged in the sale and marketing of the Fund's shares.
The Distribution Plan may not be amended to increase
materially the amount to be spent by the Fund under the Distribution
Plan without shareholder approval, and all material amendments to the
provisions of the Distribution Plan must be approved by a vote of the
Board of Directors, including a majority of the Rule 12b-1 Directors,
cast at a meeting called for the purpose of such a vote. During the
continuance of the Distribution Plan a report, in writing, will be given
to the Fund's Board of Directors, quarterly, showing the amounts and
purposes of such payments for services rendered pursuant to the
Distribution Plan. Further, during the term of the Distribution Plan,
the selection and nomination of those Directors who are not interested
persons of the Fund must be and has been committed to the discretion of
the Rule 12b-1 Directors.
During 1995, the following sums were spent for the
following purposes.
Advertising: Print, Radio & TV $6,588,659.00
Printing and Mailing: Sales
literature & Prospectuses to
other than current shareholders 2,783,253.00
Compensation to Dealers 11,370.00
Compensation to Sales Personnel 191,031.00
Other:
Postage 1,856,922.00
Telephone 32,922.00
Professional Fees and Wages 845,368.00
Miscellaneous 86,233.00
SPECIAL INVESTOR SERVICES
A shareholder may make arrangements for an Automatic
Investing Plan. There is a one time set-up charge of $5. The Automatic
Investing Plan may be changed or canceled at any time upon receipt by
the Fund's Transfer Agent of written instructions or an amended
application from the shareholder with signatures
12
<PAGE>
guaranteed. It will be terminated automatically whenever a check
is returned as being uncollected for any reason.
Since the Fund's shares are subject to fluctuations in both
income and market value, an investor contemplating making periodic
investments in shares of the Fund should consider his financial ability
to continue such investments through periods of low price levels, and
should understand that such a program cannot protect him against loss of
value in a declining market.
Individual Retirement Accounts (IRAs)
- -------------------------------------
The individual investor can select the shares of the Fund to
fund either an IRA, Rollover IRA or a non-working spousal IRA. To
establish an IRA with the Fund, you must complete an IRA Account
Registration Form. If the assets are being moved from an existing IRA
to the Fund, you must also complete the IRA Rollover/Transfer Form.
Many investors are eligible to deduct from federal income tax
all or a portion of their IRA investment. All dividends and capital
gains on IRA investments grow tax deferred until withdrawal. Investors
may make contributions to their IRAs until the tax year prior to
reaching age 70 1/2. Mandatory withdrawals must begin the year after an
investor reaches 70 1/2. Investors should consult their tax advisers
for details on eligibility and tax implications.
A Simplified Employee Pension Plan (SEP-IRA) may also be
established. Persons eligible may establish a SEP-IRA with their
employer to invest in shares of the Fund.
In connection with the creation of an IRA account, please
read the IRA Disclosure Statement and Custodial Agreement which contains
further information regarding services and fees.
Investors should consult with their own tax advisers before
establishing an IRA account.
Qualified Retirement Plans
- --------------------------
Fund shares are available for Simplified Employee Pension
Plans (SEP-IRAs). Contact the Transfer Agent at (800) 637-1700 for
details on eligibility and other information.
13
<PAGE>
Systematic Withdrawal Plan
- --------------------------
Shares are redeemed to make the requested payment on the 25th
day of each month in which a withdrawal is to be made and payments are
mailed within five business days following the redemption. The
redemption of shares, in order to make payments under this plan, will
reduce and may eventually exhaust the account. Each redemption of
shares may result in a gain or loss, which the investor must report on
his income tax return. Consequently, the investor should keep an
accurate record of any gain or loss on each withdrawal.
PURCHASE AND REDEMPTION OF SHARES
Information relating to the procedure for the purchase and
redemption of the Fund's shares at net asset value is contained on pages
___ through ___ of the Fund's Prospectus.
A description of the procedure for the determination of the
net asset value of the Fund's shares is contained on page ___ of the
Fund's Prospectus.
TAXES, DIVIDENDS AND CAPITAL GAINS
It is the intention of the Fund to qualify as a "regulated
investment company" under Subchapter M of the Internal Revenue Code of
1986, as amended. Among the requirements for such qualification is that
less than 30% of the Fund's income must be derived from gains from the
sale or other disposition of securities held for less than three months.
Accordingly, the Fund may be restricted in the writing of options on
securities which have been held for less than three months, in the
writing of options which expire in less than three months, and in
effecting closing purchase transactions. In addition, at least 90% of
gross income must be derived from dividends, interest, payments with
respect to securities loans and gains from the sale of securities.
If, in any taxable year, the Fund should not qualify as a
"regulated investment company" under the Code: (i) the Fund would be
taxed at normal corporate rates on the entire amount of its taxable
income without deduction for dividends or other distributions to its
shareholders, and (ii) the Fund's distributions to the extent made out
of the Fund's current or accumulated earnings and profits would be
taxable to its shareholders as ordinary dividends (regardless of whether
they would otherwise have been considered capital gain dividends), and
may qualify for the 70% deduction for dividends received by
corporations.
The term "regulated investment company" does not imply the
supervision of the investment practices or policies of the Fund by any
government agency.
14
<PAGE>
Qualification as a "regulated investment company" relieves
the Fund from any liability for Federal income taxes to the extent its
net investment income and capital gains are distributed.
The Fund does not intend to make distributions of profits
realized on the sale of securities unless available capital loss
carryovers, if any, have been utilized or have expired.
CUSTODIAN
State Street Bank and Trust Company, 225 Franklin Street,
Boston, MA 02110 is custodian of the securities and cash owned by the
Fund. The Custodian is responsible for holding all securities and cash
of the Fund, receiving and paying for securities purchased, delivering
securities sold against payment, receiving and collecting income from
investments, making all payments covering expenses of the Fund, and
performing other administrative duties, all as directed by persons
authorized by the Fund. The Custodian does not exercise any supervisory
function in such matters as the purchase and sale of portfolio
securities, payment of dividends, or payment of expenses of the Fund.
Portfolio securities of the Fund purchased in the United States are
maintained in the custody of the Custodian, and may be entered in the
Federal Reserve Book Entry System, or the security depository systems of
The Depository Trust Company.
AUDITOR
Sanville & Company, 1514 Old York Road, Abington,
Pennsylvania 19001, will serve as the Fund's independent public
accountants and will audit the Fund's records and prepare financial
statements based thereon.
FINANCIAL STATEMENTS
The latest financial highlights of the Fund appear in the
Prospectus: other late financial statements of the Fund appear at the
end of this Statement of Additional Information.
PERFORMANCE INFORMATION
The performance of The Kaufmann Fund, Inc. may be compared to
the record of the Standard & Poor's Corporation 500 Stock Index ("S&P
500 Stock Index"), the NASDAQ Composite Index, the Russell 2000 Index,
the Wilshire 5000 Equity Index and returns quoted by Ibbotson
Associates. The S&P 500 Stock Index is a well known measure of the
price performance of 500 leading larger domestic stocks which represents
approximately 80% of the market capitalization of the United States
equity market. In comparison, the NASDAQ National Market System is
comprised of all
15
<PAGE>
stocks on NASDAQ's National Market System, as well as other
NASDAQ domestic equity securities. The NASDAQ Composite Index has
typically included smaller, less mature companies representing 10% to
15% of the capitalization of the entire domestic equity market. Both
indices are unmanaged and capitalization weighted. In general, the
securities comprising the NASDAQ Composite Index are more growth
oriented and have a somewhat higher "beta" and P/E ratio than those in
the S&P 500 Stock Index. The Russell 2000 Index is a capitalization
weighted index which measures total return (and includes in such
calculation dividend income and price appreciation). The Russell 2000
is generally regarded as a measure of small capitalization performance.
It is a subset of the Russell 3000 Index. The Russell 3000 is comprised
of the 3000 largest U.S. companies. The Russell 2000 is comprised of
the smallest 2000 companies in the Russell 3000 Index. The Wilshire
5000 Index is a broad measure of market performance and represents the
total dollar value of all common stocks in the United States for which
daily pricing information is available. This index is also
capitalization weighted and captures total return. The small company
stock returns quoted by Ibbotson Associates are based upon the smallest
quintile of the New York Stock Exchange, as well as similar
capitalization stocks on the American Stock Exchange and NASDAQ. This
data base is also unmanaged and capitalization weighted.
The total returns for all indices used show the changes in
prices for the stocks in each index. However, only the performance data
for the S&P 500 Stock Index and the Ibbotson Associates performance data
assume reinvestment of all capital gains distributions and dividends
paid by the stocks in each data base. Tax consequences are not included
in such illustrations, nor are brokerage or other fees or expenses
reflected in the NASDAQ Composite or S&P 500 Stock figures. In
addition, the Fund's total return or performance may be compared to the
performance of other funds or other groups of funds that are followed by
Morningstar, Inc. a widely used independent research firm which ranks
funds by overall performance, investment objectives and asset size.
Morningstar proprietary ratings reflect risk-adjusted performance. The
ratings are subject to change every month. Morningstar's ratings are
calculated from a fund's three- year and five-year average annual
returns with appropriate sales charge adjustments and a risk factor that
reflects fund performance relative to three-month Treasury bill monthly
returns. Ten percent of the funds in an asset class receive a five star
rating. The Fund's total return or performance may also be compared to
the performance of other funds or groups of funds by other financial or
business publications, such as Business Week, Investors Daily, Mutual
Fund Forecaster, Money Magazine, Wall Street Journal, New York Times,
Baron's, and Lipper Analytical Services. The Fund's performance may
also be compared, from time to time, to (a) indices of stocks comparable
to those in which the Fund invests; (b) the Consumer Price Index
(measure for inflation) may be used to assess the real rate of return
from an investment in the Fund. Certain government statistics, such as
the Gross National Product, may be used to illustrate the investment
attributes of the Fund or the general economic business, investment or
financial environment in which the Fund operates. Finally, the effect
of tax-deferred compounding on the Fund's investment returns, or
16
<PAGE>
on returns in general, may be illustrated by graphs or charts where
such graphs or charts would compare, at various points in time,
the return from an investment in the Fund (or returns in general) on a
tax-deferred basis (assuming reinvestment of capital gains and dividends
and assuming one or more tax rates) with the return on a taxable basis.
ADDITIONAL PERFORMANCE INFORMATION FOR THE FUND
The Fund may reflect its total return in advertisements and
shareholder reports. Total investment return is one recognized method
of measuring mutual fund investment performance. Quotations of average
annual total return will be shown in terms of the average annual
compounded rate of return on a hypothetical investment in the Fund over
a period of 1 year, 5 years and over the life of the Fund. This method
of calculating total return is based on the following assumptions: (1)
all dividends and distributions by the Fund are reinvested in shares of
the Fund at net asset value; (2) all recurring fees are included for
applicable periods; and (3) the redemption fee of .2% on redemption of
Fund shares acquired after February 1, 1985 is taken into consideration.
Total return may also be expressed in terms of the cumulative value of
an investment in the Fund at the end of a defined period of time.
17
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
STATEMENT OF ASSETS AND LIABILITIES
-----------------------------------
December 31, 1995
-----------------
ASSETS
Investments in securities, at current market value
(Identified cost $2,024,659,437) (Notes 1, 5 and 7) $ 2,991,004,816
Temporary investments in short-term securities (Note 6) 90,391,799
Cash 18,841
Deposit with custodian bank for securities sold short 64,500,000
Receivable from brokers for securities sold short 140,144,348
Proceeds receivable from investment securities sold 20,218,514
Receivable for fund shares subscribed 9,295,105
Dividends and interest receivable 2,201,754
Due from Investment Advisor (Note 2) 259,598
Receivable, other 22,827
--------------
Total assets 3,318,057,602
--------------
LIABILITIES
Securities sold short, at current market value
(Proceeds $119,446,071) (Notes 1 and 5) 120,700,803
Payable for investment securities purchased 29,308,651
Payable for fund shares redeemed 3,588,333
Payable, other 1,149,809
--------------
Total liabilities 154,747,596
--------------
NET ASSETS $ 3,163,310,006
==============
NET ASSETS CONSIST OF:
Capital paid-in $ 2,173,000,880
Accumulated net realized gain on investments 89,474,125
Net unrealized appreciation of investments 965,090,647
Accumulated net investment loss ( 64,255,646)
--------------
Total net assets $ 3,163,310,006
==============
Net asset value per share
(based on 626,599,560 shares outstanding - 1,000,000,000
shares authorized with $.10 per share par value) $5.05
=====
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
STATEMENT OF OPERATIONS
-----------------------
Year ended December 31, 1995
----------------------------
INVESTMENT INCOME
Income:
Dividends, net of $82,217 of foreign taxes withheld
(including $3,413,397 received from affiliated
issuers) $ 9,602,797
Interest 12,469,881
------------
Total income 22,072,678
------------
Expenses:
Investment advisory fee (Note 2) 35,051,628
Distribution fee (Note 2) 12,395,758
Shareholder servicing costs 2,280,259
Service fees (Note 3) 1,815,499
Custodian fees 347,340
Printing and office expense 457,765
Registration fees 265,845
Accounting and auditing 299,828
Administrative costs 120,426
Dividends on securities sold short 292,234
Legal 137,440
Directors' fees 101,500
Loan commitment fees (Note 8) 194,792
Other 381,305
------------
Total expenses 54,141,619
Expense reimbursement by Investment Advisor (Note 2) ( 3,500,370)
------------
Net expenses 50,641,249
Net investment loss ( 28,568,571)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 118,808,032
Change in net unrealized appreciation of investments 634,381,187
------------
Net realized and unrealized gain on investments 753,189,219
------------
Net increase in net assets resulting from operations $ 724,620,648
============
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
STATEMENT OF CHANGES IN NET ASSETS
----------------------------------
Years ended December 31, 1995 and 1994
--------------------------------------
1995 1994
-------------- --------------
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment loss $( 28,568,571) $( 20,047,015)
Net realized gain on investments 118,808,032 7,398,695
Change in net unrealized apprecia-
tion of investments 634,381,187 134,778,328
-------------- --------------
Net increase in net assets resulting
from operations 724,620,648 122,130,008
Distributions (Note 4):
Dividends from net investment income - -
Distributions from net realized gain ( 56,050,609) -
Capital share transactions (Note 4) 902,189,313 503,789,076
-------------- --------------
Total increase in net assets 1,570,759,352 625,919,084
Net assets:
Beginning of year 1,592,550,654 966,631,570
-------------- --------------
End of year $ 3,163,310,006 $ 1,592,550,654
============== ==============
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 1995
-----------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
The Kaufmann Fund, Inc. (the "Fund") is registered under the
Investment Company Act of 1940, as amended, as a diversified
open-end management investment company. The Fund was
incorporated in the State of New York on September 11, 1967 and,
upon approval of its shareholders, was reincorporated in
Maryland on February 9, 1993 pursuant to a Plan of Merger. The
investment objectives, policies and limitations of the Fund
remain identical. The reincorporation of the Fund was a tax-
free reorganization within the meaning of Section 368(a)(1) of
the Internal Revenue Code and no gain or loss was recognized by
the Fund or its shareholders. In 1986, there was a change in
the Fund's management. The significant accounting policies
following are in accordance with accounting policies generally
accepted in the investment company industry.
Security Valuation
------------------
Investments in securities traded on a national securities
exchange and the NASDAQ National Market are valued at the last
reported sales price as of the Fund's close of business on the
date when the assets are valued. Over-the-counter securities
which are not traded on the NASDAQ National Market and listed
securities for which no sale was reported on the date when
assets are valued are stated at the last available bid
quotation. Foreign securities traded on foreign exchanges are
ordinarily valued at the last quoted sales price available
before the time the Fund's investments are valued. Securities
for which quotations are not readily available, including
restricted securities, are valued at fair value as determined
by the Board of Directors.
Security Transactions and Related Investment Income
---------------------------------------------------
Security transactions are recorded on the trade date basis,
which is the date the order to buy or sell is executed.
Interest income and expenses are accrued on a daily basis.
Dividend income and distributions to shareholders are recorded
on the ex-dividend date. Realized gains and losses on sales of
investment securities are determined on the identified cost
basis.
Foreign Currency Translation
----------------------------
The accounting records of the Fund are maintained in U.S.
dollars. Investment securities and all other assets and
liabilities of the Fund denominated in a foreign currency are
translated into U.S. dollars at the exchange rate each day.
Purchases and sales of securities, income receipts and expense
payments are translated into U.S. dollars at the exchange rate
in effect on the dates of the respective transactions.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Fund does not isolate the portion of the fluctuations on
investment resulting from changes in foreign currency exchange
rates from the fluctuations in market prices of investments
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
Federal Income Taxes
--------------------
The Fund intends to distribute to shareholders its taxable
investment income and net realized gains under provisions of the
Internal Revenue Code applicable to regulated investment
companies. Accordingly, no provision for Federal income taxes
is required in the accompanying financial statements.
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
Edgemont Asset Management Corporation ("Edgemont") is the
investment advisor to the Fund. Under the terms of the
investment advisory agreement, Edgemont's investment advisory
fee is calculated on an annual basis at 1.5% of the Fund's
average net assets. The fee is payable monthly. For the year
ended December 31, 1995, Edgemont received $35,051,628 for
investment advisory services. The agreement provides for an
expense reimbursement from Edgemont, to the extent of the
investment advisory fee, if the Fund's annual expenses, other
than brokerage commissions and other capital items, interest,
taxes, extraordinary items and other excludible items, exceed
any jurisdictional prescribed limitation. A reimbursement of
$3,500,370 was required for the year ended December 31, 1995.
The Fund has adopted a Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, whereby the Fund or
Edgemont may finance activities which are primarily intended to
result in the sale of the Fund's shares, including, but not
limited to, advertising, printing of prospectuses and reports
for other than existing shareholders, preparation and
distribution of advertising materials and sales literature, and
payments to dealers and shareholder servicing agents who enter
into agreements with the Fund or Edgemont. The Fund or Edgemont
may incur such distribution expenses at the rate of .75% per
annum on the Fund's average net assets. For the year ended
December 31, 1995, $12,395,758 of distribution expenses were
incurred by the Fund, equivalent to .53% per annum of the Fund's
average net assets.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
2. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
(Continued)
The Fund imposes a 2/10ths of 1% (.2%) redemption fee on the
redemption price of the Fund's capital stock shares that are
redeemed, if such shares were purchased after February 1, 1985.
The redemption fee is intended to be applied to the Fund's
aggregate expenses allocable to providing redemption services,
including, but not limited to, transfer agent fees, postage,
printing, telephone costs and employment costs related to the
handling and processing of redemptions. For the year ended
December 31, 1995, $830,042 of redemption fees were charged by
the Fund and $762,101 were allocated to cover the cost of
redemptions.
During 1995, the Fund placed a portion of its portfolio
transactions through Bowling Green Securities, Inc., for which
brokerage commissions of $51,020 were paid. Certain of the
officers and directors of the Fund are affiliated with Edgemont
and Bowling Green Securities, Inc.
3. SERVICE FEES
The Fund has adopted an Authorization Agreement for the payment
of a service fee not to exceed .25% per annum of the Fund's
average net assets to broker dealers that provide liaison
services to investors, including, but not limited to, responding
to customer inquiries and providing information on their
investments. For the year ended December 31, 1995, $1,815,499
of service fees were incurred by the Fund.
4. CAPITAL SHARE TRANSACTIONS
On September 8, 1994, upon approval of the Board of Directors,
the Fund increased its authorized shares of capital stock from
500,000,000 to 1,000,000,000.
At December 31, 1995, there were 1,000,000,000 shares of $.10
par value capital stock authorized and capital paid-in
aggregated $2,173,000,880. For the years ended December 31,
1995 and 1994, capital stock transactions were as follows:
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
4. CAPITAL SHARE TRANSACTIONS (Continued)
Shares Amount
-------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ -------------- ------------
Shares sold 290,667,544 219,627,230 $ 1,280,126,225 $ 768,434,031
Shares issued
in reinvestment
of distribution 10,762,711 - 53,274,117 -
------------ ------------ -------------- ------------
301,430,255 219,627,230 1,333,400,342 768,434,031
Shares redeemed ( 98,938,557) ( 76,067,410) ( 431,211,029) (264,644,955)
------------ ------------ -------------- ------------
Net increase 202,491,698 143,559,820 $ 902,189,313 $ 503,789,076
============ ============ ============== ============
5. INVESTMENTS
Portfolio Turnover Rate
-----------------------
The portfolio turnover rate, which is calculated based on the
lesser of the cost of investments purchased or the proceeds from
investments sold (excluding securities sold short and short-term
investments) measured as a percentage of the Fund's average
monthly portfolio, for the year ended December 31, 1995, was
60%.
Tax Basis of Investments
------------------------
At December 31, 1995, the cost of investments in securities and
proceeds of securities sold short for Federal income tax
purposes were $2,024,659,437 and $119,446,071, respectively.
Accumulated net unrealized appreciation of securities was
$965,090,647, consisting of gross unrealized appreciation and
depreciation of $1,088,442,730 and $123,352,083 respectively.
Investment Purchases and Sales
------------------------------
Purchases and sales of investment securities (excluding
securities sold short and short-term investments) for the year
ended December 31, 1995 were $2,000,356,100 and $1,286,785,578,
respectively.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
5. INVESTMENTS (Continued)
Short Sales
-----------
Short sales are transactions in which the Fund sells a security
it does not own, in anticipation of a decline in the market
value of that security. To complete such a transaction, the
Fund must borrow the security to deliver to the buyer upon the
short sale; the Fund then is obligated to replace the security
borrowed by purchasing it in the open market at some later date.
The Fund will incur a loss if the market price of the security
increases between the date of the short sale and the date on
which the Fund replaces the borrowed security. The Fund will
realize a gain if the security declines in value between those
dates. All short sales must be fully collateralized. The Fund
maintains the collateral in a segregated account consisting of
cash sufficient to collateralize the market value of its short
positions. The Fund may also sell short "against the box" (i.e.
the Fund enters into a short sale as described above, while
holding an offsetting long position in the security which is
sold short). If the Fund enters into a short sale against the
box, it will segregate an equivalent amount of securities owned
by the Fund as collateral while the short sale is outstanding.
At December 31, 1995, the market value of securities separately
segregated to cover short positions was $53,888,725. For the
year ended December 31, 1995, the cost of securities purchased
to cover short sales and the proceeds from securities sold short
were $220,744,721 and $192,926,437 respectively. Securities
sold short at December 31, 1995 and their related market values
are set forth in the Schedule of Securities Sold Short.
Restricted Securities
---------------------
A restricted security is a security which has been purchased
through a private offering and cannot be resold to the general
public without prior registration under the Securities Act of
1933. Disposal of these securities may involve time-consuming
negotiations and expense, and prompt sale at an acceptable price
may be difficult. At December 31, 1995, the Fund held
restricted securities with an aggregate value of $6,876,980,
which represented 0.2% of the Fund's total net assets.
Restricted securities are valued at fair value as determined by
the Board of Directors.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
6. TEMPORARY INVESTMENTS IN SHORT-TERM SECURITIES
The temporary investments in short-term securities at December
31, 1995 were: 1) repurchase agreements with the Fund's
custodian, State Street Bank and Trust Company and 2) shares of
institutional money market funds. Following is a summary of the
temporary investments at December 31, 1995:
Repurchase Agreements
$ 25,000,000 - 5.68%, dated 12/26/95, due 01/02/96,
maturity value $25,027,611
(collateralized by $25,620,000 par
value U.S. Treasury Notes, 4.75%,
due 09/30/98, market value
$25,500,968)
15,000,000 - 5.52%, dated 12/28/95, due 01/04/96,
maturity value $15,016,000
(collateralized by $15,675,000 par
value U.S. Treasury Bills, due
05/16/96, market value $15,302,249)
17,267,000 5.6%, dated 12/29/95, due 01/02/96, maturity
value $17,277,744 (collateralized by
$15,815,000 par value U.S. Treasury Notes,
7.5%, due 05/15/02, market value $17,614,011)
-----------
$ 57,267,000 Total repurchase agreements
===========
Money Market Funds
$ 33,124,608 - Landmark Institutional Liquid Reserves
191 - Seven Seas Series
----------
33,124,799 - Total money market funds
----------
$ 90,391,799 - Total temporary investments in short-
========== term securities
The Fund's custodian takes possession, through the Federal
Reserve Book Entry System, of the collateral pledged for
investments in repurchase agreements. The underlying collateral
is valued daily on a mark-to-market basis to ensure that the
value, including accrued interest, is at least equal to the
repurchase price. In the event of default of the obligation to
repurchase, liquidation and/or retention of the collateral may
be subject to legal proceeding.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
7. TRANSACTIONS WITH AFFILIATED COMPANIES
An affiliated company is a company in which the Fund has ownership
of at least 5% of the voting securities. Transactions with companies
which are or were affiliates are as follows:
<TABLE>
DOLLAR AMOUNTS IN THOUSANDS
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES COST COST INCOME VALUE
<S> <C> <C> <C> <C>
Access Health Marketing, Inc.* $ 422 $ 2,068 $ - $ 35,400
Action Performance Cos. Inc.* - - - 1,719
Advantage Health Corp.* 2,812 - - 30,058
Affiliated Computer Services Inc. - CLA* - - - 24,649
AHI Healthcare Systems Inc.* - - - 5,434
Alpha Industries Inc.* - - - 5,721
AMBAR, Inc.* - - - 2,439
Ambassadors International Inc.* - - - 3,851
Anika Research, Inc.* - 374 - 581
APPS Dental Inc.* 7,006 - - 0
Autotote Corp. - Class A* 27,311 7,853 - 5,875
Barrett Business Services, Inc. * 1,579 221 - 4,425
Bellwether Exploration Co.* 1,094 - - 3,594
Blyth Industries Inc.* 4,738 5,100 - 41,300
Cameron Ashley Inc.* 2,291 - - 5,637
CFI ProServices, Inc.* 1,389 2,004 - 6,805
Cincinnati Microwave Inc.* 9,996 4,381 - 0
Compdent Corp.* 5,468 3,564 - 20,958
Cort Business Services Corp.* 7,689 - - 9,537
C.P. Clare Corp.* 5,944 - - 10,250
CYRK, Inc. * 15,771 1,862 - 12,870
DonnKenny, Inc. * 12,942 1,106 - 23,925
Duff & Phelps Credit Rating Co. 2,563 - 51 6,885
Easel Corp.* - 1,262 - 0
Exide Corp. 5,166 11,161 64 32,112
FelCor Suite Hotels Inc. 5,150 2,850 966 16,650
FinishMaster Inc.* 481 - - 4,745
Great Lakes Aviation, Ltd.* 284 - - 2,134
Harvey's Casino Resorts, Inc. - 469 79 8,550
Health Management Systems, Inc.* - 4,447 - 11,700
Information Storage Devices Inc. 8,529 14,156 - 556
Inkeepers USA Trust 2,343 1,035 265 3,194
INSO Corp. * 1,738 14,587 - 15,937
Integrated Micro Products PLC ACR* - - - 4,625
</TABLE>
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
7. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
<TABLE>
DOLLAR AMOUNTS IN THOUSANDS
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES COST COST INCOME VALUE
<S> <C> <C> <C> <C>
Isomedix Inc.* $ 705 $ - $ - $ 10,494
Kronos Inc.* - 3,745 - 11,875
Learmonth & Burchette Mgmt. Systems PLC* 2,837 - - 9,206
Level One Communications, Inc.* 558 13,490 - 0
Life Partners Group, Inc. 464 - 158 19,756
Lincare Holdings, Inc.* 6,739 - - 39,312
Manufactured Home Communities, Inc. 1,408 - 1,594 23,643
Maxim Group Inc., The* 6,076 - - 6,750
McAfee Associates Inc.* 2,200 10,741 - 23,034
MedChem Products, Inc.* 315 14,710 - 0
MediSence, Inc.* 8,145 8,440 - 34,471
Microchip Technology, Inc.* 12,627 8,021 - 60,955
Minntech Corp. 4,524 - 69 13,720
Monro Muffler Brake, Inc.* 706 406 - 7,631
National Dentex Corp.* 376 - - 5,806
National Gaming Corp.* 2,851 47 - 7,155
Nu-Kote Holdings Inc. - Class A* 1,321 1,520 - 39,950
O'Reilly Automotive, Inc.* 7,422 7,367 - 11,310
Orthofix International N.V.* - 2,513 - 2,950
Pacific Physician Services, Inc.* 1,532 11,010 - 0
Pediatric Services of America Inc.* 6,118 - - 5,867
Pet Practice Inc., The* 7,175 - - 5,125
Phamis Inc.* 1,084 3,966 - 2,975
Philadelphia Consolidated Holding Corp.* 1,921 - - 6,500
Physician Sales & Service, Inc.* 2,125 1,530 - 26,647
Physicians Resource Group Inc.* - 586 - 5,366
Pyxis Corp.* 11,205 - - 27,312
QuickResponse Services, Inc.* - 5,412 - 15,711
Rational Software Corp.* 11,098 301 - 21,928
Raytel Medical Corp.* 3,211 - - 3,400
Richey Electronics Inc.* 1,570 81 - 4,109
RTW Inc.* 2,190 - - 10,500
Shared Technologies, Inc.* 190 - - 1,734
Sheridan Healthcare Inc.* 5,200 - - 4,850
Software Artistry Inc.* 2,858 437 - 1,950
Sterling House Corp.* 3,650 - - 2,907
Summa Four, Inc.* 1,366 4,389 - 5,611
Sun Healthcare Group Inc.* 1,404 18,867 - 0
</TABLE>
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
NOTES TO FINANCIAL STATEMENTS (Continued)
-----------------------------------------
December 31, 1995
-----------------
7. TRANSACTIONS WITH AFFILIATED COMPANIES (Continued)
<TABLE>
DOLLAR AMOUNTS IN THOUSANDS
<CAPTION>
PURCHASES SALES DIVIDEND MARKET
AFFILIATES COST COST INCOME VALUE
<S> <C> <C> <C> <C>
Sylvan Learning Systems* $ 10,179 $ 216 $ - $ 23,800
Systemsoft Corporation* 224 7,246 - 0
Team Rent Group Inc.* 2,316 - - 1,866
Tekelec Inc.* 5,216 - - 6,405
Tele-Matic Corp.* 2,454 - - 0
Teltrend Inc.* 6,403 - - 16,363
Uniphase Corp.* 4,627 - - 9,295
Universal Standard Medical Labs, Inc.* 1,617 - - 2,975
Veritas Software Co.* 367 5,453 - 5,700
Wandal & Goltermann Technologies, Inc.* 765 3,845 - 0
Wolverine World Wide, Inc. 4,786 2,169 167 39,375
Zoll Medical Corp.* 3,994 1,213 - 9,788
------- ------- ----- -------
$298,825 $216,221 $3,413 $958,193
======= ======= ===== =======
</TABLE>
* Non-income producing during the year
8. LINE OF CREDIT
The Fund has a $100,000,000 commited secured leverage line of credit
with its custodian bank. 75% of the total assets of the Fund are
pledged as collateral against the line. Borrowings under the line
are charged interest at 0.75% over the current Overnight Federal
Funds Rate. The Fund incurs a commitment fee of 0.25% per annum on
the unused portion of the line of credit, payable quarterly. There
were no borrowings under the line of credit during the year ending
December 31, 1995.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
FINANCIAL HIGHLIGHTS
--------------------
Selected Data For A Share Of Capital Stock Outstanding Throughout Each Year
---------------------------------------------------------------------------
1995
- -----------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 3.76
- -----------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
Net Investment Income (Loss) (0.060)
Net Realized and Unrealized Gain (Loss) on Investments 1.445
------
TOTAL FROM INVESTMENT OPERATIONS 1.385
- -----------------------------------------------------------------
LESS DISTRIBUTIONS:
Dividends from Net Investment Income -
Distributions from Net Realized Gain 0.095
------
TOTAL DISTRIBUTIONS 0.095
- -----------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 5.05
- -----------------------------------------------------------------
TOTAL RETURN 36.84%
- -----------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA:
Net Assets, End of Year (In Thousands) $3,163,310
Ratio of Expenses (After Expense Reimbursement) to
Average Net Assets (%) 2.17%
Ratio of Interest Expense to Average Net Assets (%) .01%
------
Ratio of Expenses (After Expense Reimbursement Less
Interest Expense) to Average Net Assets (%) 2.16%
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) (1.24%)
Portfolio Turnover Rate (%) 60%
- -----------------------------------------------------------------
BORROWINGS FOR THE YEAR:
Amount of Debt Outstanding at End of Year $ -
Average Amount of Debt Outstanding During the Year $ -
Average Number of Shares Outstanding During the
Year (In Thousands) 626,600
Average Amount of Debt Per Share During the Year $ -
The accompanying notes are an integral part of these financial statements.
<PAGE>
Year Ended December 31,
-----------------------------------------------------------------
1994 1993 1992 1991
-----------------------------------------------------------------
$ 3.45 $ 2.95 $ 2.65 $ 1.53
-----------------------------------------------------------------
(0.06) (0.049) (0.05) (0.05)
0.37 0.584 0.35 1.25
------ ------ ------ ------
0.31 0.535 0.30 1.20
-----------------------------------------------------------------
- - - -
- 0.035 - 0.08
------ ------ ------ ------
0.00 0.035 0.00 0.08
-----------------------------------------------------------------
$ 3.76 $ 3.45 $ 2.95 $ 2.65
-----------------------------------------------------------------
8.99% 18.18% 11.32% 79.18%
-----------------------------------------------------------------
$1,592,551 $ 966,632 $ 314,371 $ 141,134
2.29% 2.53% 2.94% 3.64%
.02% .03% .08% .52%
------ ------ ------ ------
2.27% 2.50% 2.86% 3.12%
(1.58%) (1.34%) (1.74%) (1.96%)
47% 55% 51% 128%
-----------------------------------------------------------------
$ - $49,000,000 $4,015,968 $3,017,622
$3,776,120 $ 4,563,115 $3,260,421 $2,149,395
333,175 182,699 79,977 32,294
$ .01 $ .03 $ .04 $ .06
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
STOCKS - 99.7% Shares Value
- ------ ----------- -------------
COMPUTER HARDWARE & ACCESSORIES - 1.3%
- --------------------------------------
Applied Magnetics Corp. * 440,000 $ 8,195,000
Diamond Multimedia Systems Inc. * 100,000 3,587,500
Integrated Micro Products PLC ADR + * 250,000 4,625,000
Komag Inc. * 150,000 6,918,750
Kronos Inc. + * 250,000 11,875,000
Network Appliance Corp. * 35,000 1,404,375
Read-Rite Corp. * 100,000 2,325,000
-------------
38,930,625
-------------
COMPUTER SERVICES - 4.0%
- -----------------
Affiliated Computer Services Inc. -
Class A + * 657,300 24,648,750
Alternative Resources Corp. * 150,400 4,549,600
Black Box Corp. * 200,000 3,275,000
Concord EFS Inc. * 400,000 16,900,000
DST Systems Inc. * 1,000,000 28,500,000
Gartner Group Inc. - Class A * 50,000 2,393,750
Information Resources Inc. * 1,150,000 14,231,250
Meta Group, Inc. * 30,000 918,750
Pomeroy Computer Resources Inc. * 22,000 297,000
QuickResponse Services, Inc. + * 855,000 15,710,625
Uunet Technologies, Inc. * 123,440 7,776,720
-------------
119,201,445
-------------
COMPUTER SOFTWARE - 8.2%
- -----------------
Applied Microsystems Corp. * 50,000 450,000
Astea International Inc. * 95,000 2,173,125
Business Objects S.A. * 100,000 4,837,500
CBT Group Publishing Ltd. * 225,000 11,925,000
Cellular Technical Services, Inc. * 150,000 3,487,500
CFI ProServices, Inc. + * 457,500 6,805,312
Checkfree Corp. * 100,000 2,150,000
Cheyenne Software, Inc. * 1,050,000 27,431,250
Continuum Co., Inc. * 700,000 27,650,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
COMPUTER SOFTWARE (Continued) - 8.2%
- -----------------
Dendrite International Inc. * 100,000 1,800,000
Discreet Logic Inc. * 20,000 500,000
HNC Software Inc. * 5,000 238,750
HPR Inc. * 26,500 798,312
Hummingbird Communications Ltd. * 255,000 10,327,500
INSO Corp. + * 375,000 15,937,500
Insignia Solutions PLC ADR * 300,000 3,525,000
JBA Holdings PLC * 800,000 4,808,200
Learmonth & Burchette Mgmt.
Systems PLC + * 2,080,000 9,206,399
Learmonth & Burchette * 50,000 443,750
Learning Tree International, Inc. * 200,000 3,125,000
Legato Systems Inc. * 50,000 1,550,000
Logic Works Inc. * 100,000 1,250,000
McAfee Associates Inc. + * 525,000 23,034,375
Mercury Interactive Corp. * 165,000 3,011,250
Meta-Software Inc. * 20,000 335,000
Objective Systems Integrators, Inc. * 55,000 3,011,250
On Technology Corp. * 120,000 1,560,000
Ovid Technologies Inc. * 200,000 1,450,000
Phamis Inc. + * 100,000 2,975,000
Phoenix Technology Ltd. * 417,000 6,567,750
Premenos Technology Corp. * 100,000 2,637,500
PRI Automation Inc. * 40,000 1,405,000
Pure Software Inc. * 50,000 1,612,500
Rational Software Corp. + * 980,000 21,927,500
Reynolds & Reynolds Co. 50,000 1,943,750
Scanvec Co. * 50,000 356,250
Scopus Technology Inc. * 27,000 681,750
Seer Technologies Inc. * 75,000 937,500
Software Artistry Inc. + * 130,000 1,950,000
SQA, Inc. * 15,000 288,750
Synopsys Inc. * 250,000 9,500,000
Transaction System Architects Inc. -
Class A * 325,000 10,968,750
Veritas Software Co. + * 150,000 5,700,000
Verity Inc. * 50,000 2,212,500
Visio Corp. * 31,000 875,750
-------------
245,362,223
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
CONSUMER - DURABLES - 2.1%
- -------------------
Breed Technologies Inc. 400,000 7,400,000
Exide Corp. + 700,000 32,112,500
FinishMaster Inc. + * 365,000 4,745,000
GT Bicycles Inc. * 340,000 3,145,000
Industrie Natuzzi S.p.A. ADR 200,000 9,075,000
Lifetime Hoan Corp. * 165,000 1,526,250
Masland Corp. 400,000 5,600,000
-------------
63,603,750
-------------
CONSUMER - NONDURABLES - 4.7%
- ----------------------
Action Performance Cos. Inc. + * 125,000 1,718,750
Blyth Industries Inc. + * 1,400,000 41,300,000
Central Garden & Pet Co. * 434,500 4,127,750
Cutter & Buck Inc. * 17,500 148,750
DonnKenny, Inc. + * 1,320,000 23,925,000
Family Golf Centers, Inc. * 247,000 4,507,750
Hart Brewing Company * 40,000 610,000
Jones Apparel Group, Inc. * 200,000 7,875,000
OPTA Food Ingredients Inc. * 25,000 321,875
Oakley Inc. * 400,000 13,600,000
Pete's Brewing Co. * 50,000 700,000
Quiksilver Inc. * 21,500 735,031
Wolverine World Wide, Inc. + 1,250,000 39,375,000
-------------
138,944,906
-------------
ELECTRONIC COMPONENTS - 2.6%
- ---------------------
Advanced Energy Industries Inc. * 250,000 2,250,000
AVX Corp. 500,000 13,250,000
Gemstar International Group Ltd. * 811,000 23,012,125
Information Storage Devices Inc. + * 50,000 556,250
Lecroy Corp. * 143,300 2,651,050
Nice-Systems Ltd. * 8,776 94,852
Nimbus CD International Inc. * 750,000 6,093,750
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
ELECTRONIC COMPONENTS (Continued) - 2.6%
- ---------------------
Photon Dynamics Inc. * 200,000 1,600,000
Planar Systems, Inc. * 503,000 9,619,875
PSC Inc. * 400,000 3,700,000
Radisys Corp. * 135,000 1,586,250
Richey Electronics Inc. + * 316,100 4,109,300
Smartflex Systems Inc. * 101,000 1,792,750
Stanlite Pacific Ltd. 2,048,048 943,801
Vicor Corp. * 343,000 6,860,000
-------------
78,120,003
-------------
ENVIRONMENTAL - .3%
- -------------
Culligan Water Technologies Inc. * 400,000 9,700,000
Ensys Environmental Products Inc. * 100,000 162,500
-------------
9,862,500
-------------
FINANCIAL - DOMESTIC - 2.6%
- --------------------
Duff & Phelps Credit Rating Co. + 478,966 6,885,136
First Investors Financial Svcs.
Group Inc. * 200,000 1,625,000
Insignia Financial Group, Inc. * 100,000 3,850,000
Interpool, Inc. 300,000 5,362,500
Kaye Group Inc. 236,600 1,892,800
Life Partners Group, Inc. + 1,450,000 19,756,250
MBNA Corp. 600,000 22,125,000
Mercury Finance Co. 314,550 4,167,787
Philadelphia Consolidated
Holding Corp. + * 400,000 6,500,000
Phoenix Duff & Phelps Corp. 600,000 4,125,000
Phoenix Duff & Phelps Corp. -
Pfd. Conv. Ser. A 60,000 1,515,000
-------------
77,804,473
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
FINANCIAL - FOREIGN - .1%
- -------------------
Central European Growth Fund # 1,975,000 1,180,890
Central European Growth Fund -
Warrants # * 400,000 31,061
Min Xin Holdings 3,450,000 490,786
Min Xin Holdings - Warrants # * 690,000 20,695
-------------
1,723,432
-------------
GAMING - 2.2%
- ------
Ameristar Casinos, Inc. * 225,000 1,462,500
Autotote Corp. - Class A + * 2,000,000 5,875,000
Casino Data Systems, Inc. * 325,000 8,125,000
Grand Casinos, Inc. * 150,000 3,487,500
Harvey's Casino Resorts, Inc. + 475,000 8,550,000
Hollywood Casino Corp. - Class A * 180,000 765,000
National Gaming Corp. + * 602,500 7,154,687
Players International Inc. * 1,000,000 10,687,500
President Casinos, Inc. * 90,000 157,500
Primadonna Resorts, Inc. * 350,000 5,162,500
Station Casinos, Inc. * 1,027,500 15,027,187
-------------
66,454,374
-------------
INDUSTRIAL - .6%
- ----------
Cameron Ashley Inc. + * 550,000 5,637,500
Computational Systems Inc. * 60,000 930,000
International UNP Holdings Ltd. # * 2,420,000 815,233
Liberty Technologies, Inc. * 110,000 550,000
NN Ball & Roller Inc. 202,500 3,543,750
Nuco2, Inc. * 150,000 1,950,000
Simpson Manufacturing Co. * 290,000 3,915,000
Treadco, Inc. 195,000 1,121,250
-------------
18,462,733
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
LODGING - 6.2%
- -------
HFS Inc. * 1,700,000 138,975,000
La Quinta Inns Inc. 200,000 5,475,000
Prime Hospitality Corp. * 600,000 6,000,000
Red Lion Hotels Inc. * 100,000 1,750,000
Renaissance Hotel Group N.V. * 1,000,000 25,500,000
Studio Plus America Inc. * 180,000 4,635,000
Supertel Hospitality Inc. * 197,500 1,975,000
-------------
184,310,000
-------------
MEDIA & COMMUNICATIONS - .4%
- ----------------------
American Radio Systems Corp. - Class A * 80,000 2,240,000
Blonder Tongue Labs, Inc. * 100,000 975,000
Central European Media Enterprises Ltd. * 100,000 2,050,000
Cinar Films Inc. - Class B * 200,000 3,025,000
Consolidated Graphics Inc. * 100,000 2,600,000
Lodgenet Entertainment Corp. * 50,000 475,000
Matav Cable System * 15,000 143,911
Metrovision North America - Com. # * 50,976 0
Metrovision North America - Pfd. # * 24,588 0
Shared Technologies, Inc. + * 440,324 1,733,776
-------------
13,242,687
-------------
MEDICAL EQUIPMENT & SUPPLIES - 7.3%
- ----------------------------
Arrow International Inc. 210,000 8,347,500
Combact Diagnostics # * 22,500 1,000,000
Conmed Corp. * 292,500 7,312,500
Endosonics Corp. * 100,000 1,512,500
Exogen Inc. * 100,000 1,925,000
Haemonetics Corp. * 590,000 10,472,500
Heart Technology Inc. * 100,000 3,287,500
Hemasure Inc. * 200,000 2,550,000
Instent Inc. * 85,000 1,275,000
Kensey Nash Corp. * 150,000 1,875,000
Lifeline Systems Inc. * 200,000 2,425,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
MEDICAL EQUIPMENT & SUPPLIES (Continued) - 7.3%
- ----------------------------
MediSense, Inc. + * 1,090,000 34,471,250
Medstone International, Inc. * 100,000 1,050,000
Minntech Corp. + 696,900 13,720,219
Molecular Devices Corp. * 90,000 945,000
Neopath Inc. * 290,000 6,742,500
Orthofix International N.V. + * 400,000 2,950,000
Physician Sales & Service, Inc. + * 935,000 26,647,500
Physio Control International Corp. * 700,000 12,512,500
PLC Systems Inc. * 300,000 4,987,500
Pyxis Corp. + * 1,867,500 27,312,187
Quantech Ltd. # * 600,000 125,000
Steris Corp. * 500,000 16,125,000
Sunrise Technologies Inc. - Warrants # * 11,500 0
Technol Medical Products Inc. * 485,500 8,739,000
Trex Medical Corp. # * 20,000 205,000
Vivus Inc. * 280,000 8,750,000
Zoll Medical Corp. + * 1,087,500 9,787,500
-------------
217,052,656
-------------
MEDICAL SERVICES - 14.2%
- ----------------
ABR Information Services, Inc. * 150,000 6,600,000
AHI Healthcare Systems Inc. + * 945,000 5,433,750
ARV Assisted Living Inc. * 300,000 3,525,000
Access Health Marketing, Inc. + * 800,000 35,400,000
Advantage Health Corp. + * 689,000 30,057,625
American Medical Response, Inc. * 380,000 12,350,000
American Oncology Resources Inc. * 200,000 9,725,000
Amisys Managed Care Systems Inc. * 100,000 1,900,000
Apogee Inc. * 235,000 2,173,750
Arbor Heatlh Care Co. * 177,500 3,106,250
Avecor Cardiovascular Inc. * 90,000 1,597,500
Bard (C.R.) Inc. 616,495 19,881,964
Boston Scientific Corp. * 80,000 3,920,000
Community Health Systems, Inc. * 368,900 13,142,062
Compdent Corp. + * 505,000 20,957,500
CRA Managed Care Inc. * 200,000 4,375,000
Cryolife Inc. * 30,000 465,000
De Rigo S.P.A. ADR * 200,000 4,550,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
MEDICAL SERVICES (Continued) - 14.2%
- ----------------
Diagnostic Products Corp. 500,000 18,937,500
GMIS Inc. * 100,000 1,300,000
Healthdyne Technologies Inc. * 300,000 3,450,000
Health Management Systems, Inc. + * 300,000 11,700,000
Healthplan Services Corp. * 101,000 2,525,000
Healthsouth Corp. * 350,000 10,193,750
Horizon Healthcare Corp. * 250,000 6,312,500
ICU Medical Inc. * 102,500 1,742,500
Inphynet Medical Management Inc. * 400,000 9,600,000
Isomedix Inc. + * 730,000 10,493,750
Lincare Holdings, Inc. + * 1,572,500 39,312,500
Lunar Corp. * 82,500 2,268,750
Mecon, Inc. * 100,000 1,587,500
Myriad Genetics Inc. * 50,000 1,631,250
National Dentex Corp. + * 237,000 5,806,500
National Surgery Centers Inc. * 200,000 4,600,000
Orthodontic Centers of America, Inc. * 235,000 11,338,750
Pediatric Services of America Inc. + * 372,500 5,866,875
Pet Practice Inc., The + * 500,000 5,125,000
Physician Reliance Network Inc. * 400,000 15,900,000
Physicians Resource Group Inc. + * 270,000 5,366,250
Quorum Health Group Inc. * 360,000 7,920,000
Raytel Medical Corp. + * 400,000 3,400,000
Serologicals Corp. * 200,000 3,300,000
Sheridan Healthcare Inc. + * 400,000 4,850,000
Sola International Inc. * 300,000 7,575,000
Spine-Tech Inc. * 50,000 1,162,500
Sterling House Corp. + * 302,000 2,906,750
Summit Medical Systems Inc. * 150,000 3,225,000
Total Renal Care Holdings Inc. * 110,000 3,245,000
United Dental Care Inc. * 200,000 8,250,000
Universal Standard Medical Labs, Inc.+ * 700,000 2,975,000
Uromed Corp. * 55,000 708,125
Vencor, Inc. * 200,000 6,500,000
Veterinary Centers of America Inc. * 50,000 843,750
Waters Corp. * 800,000 14,600,000
Xenometrix Inc. - Pfd. # * 50,000 0
-------------
425,679,901
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
MISCELLANEOUS - .9%
- -------------
Buckeye Cellulose Corp. * 700,000 15,400,000
C.P. Pokphand Co. 9,998,000 4,008,251
Concepts Direct Inc. # * 8,500 0
Kumagai Gumi Ltd. 1,086,000 786,499
Storage USA, Inc. 200,000 6,525,000
Techniche Limited * 225,100 527,029
Trinity Biotech PLC # * 48,131 0
-------------
27,246,779
-------------
NETWORKING - 1.4%
- ----------
3Com Corp. * 10,000 466,250
Bay Networks Inc. * 195,000 8,019,375
Cisco Systems Inc. * 100,000 7,462,500
Desktop Data Inc. * 1,000 24,500
Fore Systems Inc. * 160,000 9,520,000
Network Computing Devices Inc. * 280,800 2,000,700
Olicom A/S * 275,000 4,193,750
Proteon Inc. * 200,000 1,325,000
Teklogix International Inc. * 100,000 970,341
Tellabs Inc. * 100,000 3,700,000
Unison Software Inc. * 215,000 3,708,750
-------------
41,391,166
-------------
OFFICE & BUSINESS EQUIPMENT - 3.3%
- ---------------------------
Alco Standard Corp. 100,000 4,562,500
Checkmate Electronics Inc. * 20,000 295,000
Danka Business Systems PLC ADR 1,300,000 48,100,000
Data Documents Inc. * 94,300 813,337
International Imaging Materials, Inc. * 145,000 3,661,250
Nu-Kote Holdings Inc. - Class A + * 2,350,000 39,950,000
-------------
97,382,087
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
OIL & GAS - .9%
AMBAR , Inc. + * 282,800 2,439,150
Arakis Energy Corp. * 409,300 1,227,900
Bellwether Exploration Co. + * 625,000 3,593,750
Benton Oil & Gas Co. * 393,300 5,899,500
Coda Group PLC * 1,105,000 3,672,465
Hardman Resoures AUD # * 562,500 0
Harken Energy Corp. * 238,100 416,675
NUMAR Corp. * 200,000 2,225,000
St. Mary Land & Exploration Co. 190,400 2,665,600
Snyder Oil Corp. 100,000 1,212,500
Tide West Oil Co. * 295,000 3,945,625
-------------
27,298,165
-------------
PHARMACEUTICAL - .4%
- --------------
Akorn Inc. * 317,000 812,312
Anika Research, Inc. + * 150,000 581,250
Biokine Technology Ltd. # * 125 0
Cygnus Inc. * 10,000 223,750
Ergo Science Corp. * 10,000 142,500
Incyte Pharmaceuticals Inc. * 90,000 2,250,000
Matrix Pharmaceutical Inc. * 100,000 1,875,000
Neose Pharmaceuticals, Inc. - Pfd. # * 16,667 0
Parexel International Corp. * 100,000 3,325,000
Pharmacyclics Inc. * 300,000 4,200,000
Titan Pharmaceuticals Inc. - Pfd. # * 46,131 0
-------------
13,409,812
-------------
REITS - 2.3%
- -----
Equity Inns Inc. 150,000 1,725,000
Equity Residential Properties Trust 400,000 12,250,000
Felcor Suite Hotels Inc. + 600,000 16,650,000
First Commonwealth Inc. * 50,000 1,300,000
Innkeepers USA Trust + 350,000 3,193,750
Manufactured Home Communities, Inc. + 1,351,000 23,642,500
RFS Hotel Investors, Inc. 325,000 4,996,875
Starwood Lodging Trust SBI Paired CTF. 200,000 5,950,000
-------------
69,708,125
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
RESTAURANTS - .2%
Cheesecake Factory Inc., The * 180,000 3,870,000
Starbucks Corp. * 100,000 2,100,000
-------------
5,970,000
-------------
RETAIL - 12.4%
- ------
Amway Asia Pacific Ltd. 400,000 14,250,000
Autozone, Inc. * 600,000 17,325,000
Baby Superstore, Inc. * 450,000 25,650,000
Bed, Bath & Beyond, Inc. * 100,000 3,881,250
Borders Group Inc. * 500,000 9,250,000
Carrefour S.A. * 15,000 9,100,470
Cash America International, Inc. * 100,000 550,000
CUC International Inc. * 200,000 6,825,000
Compucom Systems Inc. * 400,000 3,800,000
Dave & Buster's Inc. * 225,000 2,728,125
Department 56, Inc. * 425,000 16,309,375
Dollar Tree Stores Inc. * 250,000 6,187,500
Gadzooks Inc. * 200,000 5,050,000
Garden Ridge Corp. * 180,500 6,994,375
Global DirectMail Corp. * 400,000 11,000,000
Gymboree Corp. * 100,000 2,062,500
Heilig-Meyers Co. 150,000 2,756,250
Hollywood Entertainment Corp. * 175,000 1,465,625
Home Depot, Inc. 200,000 9,575,000
Kohl's Corp. * 500,000 26,250,000
Lone Star Steakhouse & Saloon Inc. * 130,000 4,988,750
Maxim Group Inc., The + * 500,000 6,750,000
Monro Muffler Brake, Inc. + * 550,000 7,631,250
MSC Indl Direct, Inc. * 401,000 11,027,500
Office Depot Inc. * 500,000 9,875,000
O'Reilly Automotive, Inc. + * 390,000 11,310,000
PETsMART, Inc. * 550,000 17,050,000
Regis Corp. 250,000 6,000,000
Schein (Henry) Inc. * 320,000 9,440,000
Sonic Corp. * 250,000 4,750,000
Staples Inc. * 230,000 5,606,250
Sunglass Hut International, Inc. * 900,000 21,375,000
Tiffany & Co. 32,500 1,637,188
Viking Office Products, Inc. * 1,200,000 55,800,000
Wetherspoon (J.D.) Corp. 1,542,427 15,450,620
-------------
369,702,028
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
SEMICONDUCTOR & EQUIPMENT - 12.3%
- -------------------------
Advanced Technology Materials Inc. * 132,500 1,325,000
Alpha Industries Inc. + * 405,000 5,720,625
Altera Corp. * 1,852,000 92,137,000
Applied Materials, Inc. * 800,000 31,500,000
ASM Lithography Holdings NV * 470,000 15,627,500
Burr-Brown Corp. * 200,000 5,100,000
C.P. Clare Corp. + * 500,000 10,250,000
Cypress Semiconductor Corp. * 150,000 1,912,500
ESS Technology Inc. * 400,000 9,200,000
ETEC Systems Inc. * 103,000 1,158,750
EXAR Corp. * 145,000 2,138,750
FSI International Inc. * 94,000 1,903,500
Fusion Systems Corp. * 70,000 1,960,000
GaSonics International Corp. * 146,250 1,974,375
Integrated Device Technology Inc. * 125,000 1,609,375
Intel Corp. 10,000 567,500
International Rectifier Corp. * 800,000 20,000,000
LSI Logic Corp. * 550,000 18,012,500
MEMC Electronic Materials Inc. * 700,000 22,837,500
Microchip Technology, Inc. + * 1,670,000 60,955,000
Micron Technology Inc. 150,000 5,943,750
Oak Technology Inc. * 500,000 21,125,000
Ontrak Systems Inc. * 15,000 217,500
Supertex, Inc. * 100,000 1,037,500
Telcom Semiconductor Inc. - Class A * 199,000 1,442,750
Teradyne Inc. * 200,000 5,000,000
Tower Semiconductor Ltd. * 205,000 4,535,625
Uniphase Corp. + * 260,000 9,295,000
Vitesse Semiconductor Corp. * 500,000 6,375,000
Xilinx, Inc. * 225,000 6,862,500
Zoran Corp. * 10,000 207,500
-------------
367,932,000
-------------
SERVICE - 4.7%
- -------
Ambassadors International Inc. + * 395,000 3,851,250
AMRE Inc. * 100,000 1,462,500
APAC Teleservices Inc. * 100,000 3,337,500
Apollo Group, Inc. * 900,001 35,212,539
Barrett Business Services, Inc. + * 300,000 4,425,000
Consolidated Delivery Logistics Inc. * 300,000 3,300,000
Cort Business Services Corp. + * 578,000 9,537,000
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
SERVICE (Continued) - 4.7%
CYRK, Inc. + * 1,320,000 12,870,000
Employee Solutions Inc. * 145,000 4,930,000
Equity Corporation International Inc. * 250,000 5,937,500
Healthsource Inc. * 100,000 3,600,000
Rentokil Group PLC * 925,000 4,812,471
RTW Inc. + * 400,000 10,500,000
SITEL Corp. * 221,000 6,768,125
SOS Staffing Services Inc. * 140,000 1,312,500
Sylvan Learning Systems, Inc. + * 800,000 23,800,000
U.S. Delivery Systems, Inc. * 199,259 5,778,511
-------------
141,434,896
-------------
TELECOMMUNICATIONS - 2.7%
- ------------------
Alantec Corp. * 3,000 174,750
AML Communications, Inc. * 175,000 1,837,500
Celcore, Inc. # * 85,000 510,000
CIDCO, Inc. * 285,000 7,267,500
Comverse Technology Inc. * 200,000 4,000,000
Davox Corp. * 10,000 118,750
DSC Communications Corp. * 355,000 13,090,625
ECI Telecom Ltd. * 20,000 456,250
Interdigital Communication Corp. * 50,000 368,750
Mastec, Inc. * 400,000 5,300,000
Network Equipment Technologies, Inc. * 85,900 2,351,512
Proxim Inc. * 307,000 5,449,250
Summa Four, Inc. + * 419,500 5,610,812
Tekelec Inc. + * 610,000 6,405,000
Tele-Communications International Inc. * 100,000 2,275,000
Teltrend Inc. + * 350,000 16,362,500
T-Netix Inc. * 60,000 600,000
Transaction Network Services Inc. * 180,000 4,500,000
Wegener Corp. # * 393,000 2,999,101
-------------
79,677,300
-------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Market
Shares Value
---------- -------------
TRANSPORTATION - AIR - 1.4%
- --------------------
Atlas Air Inc. * 325,000 5,443,750
Eagle USA Airfreight, Inc. * 365,000 9,581,250
Expeditors International of
Washington, Inc. 140,000 3,657,500
Fritz Companies, Inc. * 200,000 8,300,000
Great Lakes Aviation, Ltd. + * 569,000 2,133,750
Mark VII Inc. * 100,000 1,550,000
OMI Corp. * 550,000 3,575,000
Team Rent Group Inc. + * 219,500 1,865,750
United Transnet, Inc. * 300,000 4,612,500
-------------
40,719,500
-------------
TOTAL STOCKS (Cost $2,014,008,155) $2,980,627,566
=============
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF INVESTMENTS
-----------------------
December 31, 1995
-----------------
Face Market
CONVERTIBLE BONDS - .3% Amount Value
- ----------------- ----------- -------------
Baby Superstore Inc.
4.875% 10/01/2000 $ 4,000,000 4,590,000
Exide Corp.
2.9% 12/15/2005 5,000,000 3,600,000
Future Healthcare, Inc.
5.5% 07/01/2003 500,000 250,000
Kumagai Gumi Ltd.
4.875% 12/08/1998 500,000 441,250
Sales Dynamics, Inc.
8% 01/01/1997 # 1,000,000 500,000
Shangri-La Asia Ltd.
2.875% 12/16/2000 1,200,000 996,000
-----------
TOTAL CONVERTIBLE BONDS (Cost $10,651,282) $ 10,377,250
===========
TOTAL INVESTMENTS - 100% $2,991,004,816
(Cost $2,024,659,437) =============
Legend
% Represents percentage of total portfolio owned
* Non-income producing during the year
+ Affiliated company (See Note 7 of Notes to
Financial Statements)
# Restricted securities - investment in securities
not registered under the Securities Act of
1933 (see Notes 1 and 5 of Notes to
Financial Statements)
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF SECURITIES SOLD SHORT
---------------------------------
December 31, 1995
-----------------
Market
STOCKS Shares Value
- ------ ---------- -------------
Able Telcom Holding Corp. 15,000 $ 108,750
American Oncology Resources Inc. 100,000 4,862,500
American Online Inc. 80,000 3,000,000
American Power Conversion Corp. 250,000 2,379,750
Appollo Group, Inc. 35,000 1,369,375
BMC Software Inc. 40,000 1,710,000
BroadBand Technologies Inc. 20,000 325,000
CBT Group Publishing Ltd. 155,000 8,215,000
Cerner Corp. 210,000 410,000
Chantal Pharmaceutical Corp. 74,700 2,035,575
Cisco Systems Inc. 20,000 1,492,500
Detroit Diesel Corp. 150,000 2,793,750
Diametrics Medical Inc. 100,000 487,500
EMPI Inc. 30,000 765,000
EPIC Design Technology Inc. 145,200 3,049,200
Gemstar Group Ltd. 187,500 5,320,313
Gibson Greetings Inc. 50,000 800,000
Grand Casinos Inc. 150,000 3,487,500
HNC Software Inc. 10,000 477,500
Hummingbird Communications Ltd. 43,000 1,741,500
ICC Technologies Inc. 60,500 665,500
Immunex Corp. (New) 85,000 1,402,500
INSO Corp. 110,000 4,675,000
Integrated Silicon Solution, Inc. 50,000 757,500
Isolyser Inc. 44,200 618,800
I-STAT Corp. 55,000 1,787,500
Lone Star Steakhouse & Saloon Inc. 130,000 4,988,750
Mercury Finance Co. 314,550 4,167,787
METATEC Corp. 200 2,200
Micron Technology Inc. 150,000 5,943,750
Navistar International Corp. 200,000 2,100,000
Netscape Communications Co. 15,000 2,085,000
North American Vaccine Inc. 448,600 6,336,475
Occidental Petroleum Corp. 350,000 7,481,250
Organogenesis Inc. 476,375 8,753,391
Panda Project, Inc., The 17,200 374,100
Peoplesoft Inc. 15,000 645,000
Physicians Computer Network, Inc. 150,000 1,350,000
Premenos Technology Corp. 100,000 2,637,500
Presstek, Inc. 20,600 1,946,700
Roadmaster Industries Inc. 36,900 87,637
Roadway Services Inc. 50,000 2,443,750
The accompanying notes are an integral part of these financial statements.
<PAGE>
The Kaufmann Fund, Inc.
-----------------------
SCHEDULE OF SECURITIES SOLD SHORT
---------------------------------
December 31, 1995
-----------------
Market
STOCKS (Continued) Shares Value
- ------------------ ---------- -------------
SAFECO Corp. 20,000 690,000
Sequent Computer Systems Inc. 50,000 725,000
Stratacom Inc. 25,000 1,837,500
Summit Medical Systems Inc. 150,000 3,225,000
Summit Technology, Inc. 75,000 2,531,250
Trinquint Semiconductor Inc. 12,500 168,750
Union Carbide Corp. 20,000 750,000
Uunet Technologies Inc. 10,000 630,000
Verity Inc. 50,000 2,212,500
Williams-Sonoma Inc. 100,000 1,850,000
-----------
TOTAL SECURITIES SOLD SHORT $120,700,803
===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
PART C
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements
--------------------
The following financial statements for the calendar year ending December 31,
1995 appear in the Fund's Prospectus or in the Statement of Additional
Information.
In Prospectus
-------------
(1) Per Share Income and Capital Changes -
Ten Years - December 31, 1986-1995
In Statement of Additional Information
--------------------------------------
(2) Statement of Assets and Liabilities - December 31,
1995
(3) Statement of Operations - December 31, 1995
(4) Statement of Changes in Net Assets - December 31,
1994 and December 31, 1995
(5) Notes to Financial Statements - December 31, 1995
(6) Financial Highlights - Five Years - December 31, 1991-1995
(7) Schedule of Investments - December 31, 1995
(8) Schedule of Securities Sold Short - December 31, 1995
<PAGE>
(b) Exhibits
--------
Exhibit No.
-----------
(1) Copies of the Certificate of
Incorporation as now in effect;
Certificate of Incorporation,
as amended 1
(2) Copies of the existing By-Laws
or instruments corresponding
thereto;
Copy of By-Laws 2
(3) Copies of any voting Trust None
Agreement with respect to
more than 5% of any class
of equity securities of
the Registrant.
(4) Specimens of copies of each
security issued by the
Registrant, including copies
of all constituent instruments,
defining the rights of the
holders of such securities and
copies of each security being
registered;
The Kaufmann Fund, Inc. 4*
Certificate of Common Stock
(5) Copies of all investment
advisory contracts relating to
the management of the Assets
of the Registrant;
Copy of Investment Management 5
Agreement between The Kaufmann
Fund, Inc. and Edgemont Asset
Management Corporation as amended.
2
<PAGE>
(6) Copies of each underwriting or None
distribution contract between
the Registrant and a principal
underwriter, and specimens of
copies of all agreements between
principal underwriters and dealers.
(7) Copies of all bonus, profit None
sharing, pension or other similar
arrangements wholly or partly for
the benefit of Directors or
Officers of the Registrant in
their capacity as such; any such
plan that is not set forth in a
formal document, furnish a
reasonably detailed description thereof.
(8) Copies of all custodian
agreements and depository
contracts under Section 17(f)
of the 1940 Act with respect
to securities and similar
investments.
Form of Custodian Agreement 8**
between and The Kaufmann Fund,
Inc. and State Street Bank and
Trust Company.
(9) Copies of all material contracts
not made in the ordinary course
of business which are to be
performed in whole or in part at
or after the date of the filing of
the Registration Statement;
(a) Form of Transfer Agency 9(a)**
and Service Agreement between
The Kaufmann Fund, Inc. and Boston
Financial Data Services, Inc.
3
<PAGE>
(b) Copy of Accounting Services 9(b)**
Agreement between The Kaufmann
Fund, Inc. and Boston Financial
Data Services, Inc.
(c) Copy of Authorization Agreement 9(c)**
for payment of Service Fees
(10) An opinion and consent of counsel
as to the legality of the securities
being registered, indicating whether
they will, when sold, be legally
issued, fully paid and non-assessable;
Opinion of counsel and consent
filed on February 15, 1996 as
part of Rule 24f-2 Notice for
securities transactions in 1995.
(11) Copies of any other opinions,
appraisals or rulings and consents
to the use thereof relied on in the
preparation of this Registration
Statement and required by Section 7
of the 1933 Act.
(a) Opinion of Sanville 11(a)
Company - Certified Public
Accountants
(b) Consent of Sanville & 11(b)
Company
(12) All financial statements None
omitted from Item 23;
(13) Copies of any agreements or None
understandings made in
consideration for providing the
initial capital between and among
the Registrant, the Underwriter,
adviser, promoter, or initial
stockholders that their purchases
were made for investment purposes
without any present intention of
redeeming or reselling.
4
<PAGE>
(14) Copies of model plan used in the
establishment of any retirement plan
in conjunction with which Registrant
offers its securities, any instructions
thereto, and any other documents making
up the model plan. Such form(s) should
disclose the costs and fees charged in
connection therewith.
Copy of State Street Bank and Trust 14(a)**
Company Individual Retirement
Custodial Account.
Copy of Disclosure Statement. 14(b)**
(15) Copies of any plan entered into
by Registrant pursuant to Rule 12b-1
under the 1940 Act, which describes
all material aspects of the
financing of distribution or
Registrant's shares, and
any agreements with any person
relating to implementation of such
Plan.
Plan of Distribution adopted 15(a)*
by The Kaufmann Fund, Inc.
Agreement Pursuant to Plan of 15(b)*
Distribution between The
Kaufmann Fund, Inc. and Edgemont
Asset Management Corporation
(16) Schedule for computation
of each performance quotation
provided in the Registration
Statement in response to Item 22
(which need not be audited).
5
<PAGE>
Computation of a $1,000 16
Hypothetical Investment in
the Fund, as set forth in
Prospectus Fee Table
* An Exhibit to Post-Effective Amendment No. 37 which was filed on
December 11, 1993.
** An Exhibit to Post-Effective Amendment No. 43 which was filed on
March 15, 1995.
All Exhibits except those filed with this Post-Effective Amendment are
hereby incorporated by reference.
Item 25. Persons Controlled by or Under Common Control With Registrant
-------------------------------------------------------------
There are no persons controlled by or under common control with
Registrant.
Item 26. Number of Holders of Securities
-------------------------------
(a) Title of Class
--------------
Common Capital Stock, $.10 par value
(b) Number of Record Holders
------------------------
As of December 31, 1995 - 191,498
Item 27. Indemnification
---------------
(a) General. The Articles of Incorporation (the "Articles")
of the Fund provide that to the fullest extent permitted
by Maryland or federal law, no director or officer of the
Fund shall be personally liable to the Fund or its
shareholders for money damages and each director and
officer shall be indemnified by the Fund. The By-Laws of
the Fund provide that the Fund shall indemnify any
individual who is a present or former director or officer
of the Fund and who, by reason of his position was, is or
is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative
(hereinafter collectively referred to as a "Proceeding")
against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by such director or
officer in connection with such Proceeding, to the fullest
extent that such indemnification may be lawful under
Maryland law.
6
<PAGE>
(b) Disabling Conduct. Both the Articles and the By-Laws
provide, however, that nothing therein shall be deemed to
protect any director or officer against any liability to
the Fund or its shareholders to which such director or
officer would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or
her office (such conduct hereinafter referred to as
"Disabling Conduct").
The By-Laws provide that no indemnification of a director
or officer may be made unless: (1) there is a final
decision on the merits by a court or other body before
whom the Proceeding was brought that the director or
officer to be indemnified was not liable by reason of
Disabling Conduct; or (2) in the absence of such a
decision, there is a reasonable determination, based upon
a review of the facts, that the director or officer to be
indemnified was not liable by reason of Disabling Conduct,
which determination shall be made by: (i) the vote of a
majority of a quorum of directors who are neither
"interested persons" of the Fund as defined in Section
2(a)(19) of the 1940 Act, nor parties to the Proceeding;
or (ii) an independent legal counsel in a written opinion.
(c) Standard of Conduct. Under Maryland law, the Fund may not
indemnify any director if it is proved that: (1) the act
or omission of the director was material to the cause of
action adjudicated in the Proceeding and (i) was committed
in bad faith or (ii) was the result of active and
deliberate dishonesty; or (2) the director actually
received an improper personal benefit; or (3) in the case
of a criminal proceeding, the director had reasonable
cause to believe that the act or omission was unlawful.
No indemnification may be made under Maryland law unless
authorized for a specific proceeding after a
determination, in accordance with Maryland law, has been
made that indemnification is permissible in the
circumstances because the requisite standard of conduct
has been met.
(d) Required Indemnification. Maryland law requires that a
director or officer who is successful, on the merits or
otherwise, in the defense of any Proceeding shall be
indemnified against reasonable expenses incurred by the
director or officer in connection with the Proceeding. In
addition, under Maryland law, a court of appropriate
jurisdiction may order indemnification under certain
circumstances.
7
<PAGE>
(e) Advance Payment. The By-Laws provide that the Fund may
pay any reasonable expenses so incurred by any director or
officer in defending a Proceeding in advance of the final
disposition thereof to the fullest extent permissible
under Maryland law. In accordance with the By-Laws, such
advance payment of expenses shall be made only upon the
undertaking by such director or officer to repay the
advance unless it is ultimately determined that such
director or officer is entitled to indemnification, and
only if one of the following conditions is met: (1) the
director or officer to be indemnified provides a security
for his undertaking; (2) the Fund shall be insured against
losses arising by reason of any lawful advances; or (3)
there is a determination, based on a review of readily
available facts, that there is reason to believe that the
director or officer to be indemnified ultimately will be
entitled to indemnification, which determination shall be
made by: (i) a majority of a quorum of directors who are
neither "interested persons" of the Fund, as defined in
Section 2(a)(19) of the 1940 Act, nor parties to the
Proceeding; or (ii) an independent legal counsel in a
written opinion.
(f) Insurance. The By-Laws provide that, to the fullest
extent permitted by Maryland law and Section 17(h) of the
1940 Act, the Fund may purchase and maintain insurance on
behalf of any officer or director of the Fund, against any
liability asserted against him or her and incurred by him
or her in and arising out of his or her position, whether
or not the Fund would have the power to indemnify him or
her against such liability.
Item 28. Business and Other Connections of Investment Advisor
----------------------------------------------------
Bowling Green Securities, Inc., 140 East 45th Street, 43rd Floor,
New York, New York 10017, is wholly owned by Hans P. Utsch. Mr. Utsch
is the Chairman of the Board and owner of 50% of the outstanding voting
securities of Edgemont Asset Management Corporation. Mr. Lawrence
Auriana is a registered representative of Bowling Green Securities, Inc.
and is a director and president of Edgemont Asset Management Corporation
and owns 50% of the outstanding voting securities of such company.
Item 29. Principal Underwriter
---------------------
The Fund does not have a principal underwriter
8
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
The books and records of the Fund, other than the accounting
and transfer agency (including dividend disbursing) records,
are maintained by the Fund at 140 East 45th Street, 43rd
Floor, New York, New York 10017; the Fund's accounting and
transfer agency records are maintained at Boston Financial
Data Services, Inc., Two Heritage Drive, Quincy, MA 02171.
Item 31. Management Services
-------------------
There are no management service contracts not described in
Part A or Part B of Form N-1A
Item 32. Undertakings
------------
a) The Fund undertakes to provide a copy of its most recent
Annual Report without charge to any recipient of its
currently effective prospectus who requests the
information.
b) The Fund agrees that the Directors of the Fund will
promptly call a meeting of shareholders for the purpose
of acting upon questions of removal of a director or
directors when requested in writing to do so by the
record holder of not less than 10% of the outstanding
shares.
9
<PAGE>
COUNSEL'S REPRESENTATION
Post-Effective Amendment No. 45 to the Registration Statement on
Form N-1A of The Kaufmann Fund, Inc. does not contain disclosures which
would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485 under the Securities Act of 1933, as amended.
/s/ Martin V. Miller
_________________________
MARTIN V. MILLER,
Counsel for
The Kaufmann Fund, Inc.
Exhibit 1
ARTICLES OF INCORPORATION
OF
THE KAUFMANN FUND, INC.
WE, THE UNDERSIGNED, Timothy F. O'Connell, whose post-office address is
1635 Market Street, Philadelphia, PA 19103, and Janice C. Naulty, whose
post-office address is 1635 Market Street, Philadelphia, PA 19103, each
being at least eighteen years of age, do, under and by virtue of the
General Laws of the State of Maryland authorizing the formation of
corporations, associate ourselves as incorporators with the intention of
forming a corporation.
FIRST: The name of the corporation is
THE KAUFMANN FUND, INC.
SECOND: The purposes for which the corporation is formed are:
To engage in business as an investment company, and to engage in any or
all lawful business for which corporations may be organized under the
Maryland General Corporation Law.
THIRD: The post-office address of the principal office of the
corporation in this State is c/o The Corporation Trust Incorporated,
32 South Street, Baltimore, Maryland 21202. The name of the resident agent
of the corporation in this State is The Corporation Trust Incorporated,
a corporation of this State, and the post-office address of the
<PAGE>
resident agent is 32 South Street, Baltimore, Maryland 21202.
FOURTH: The total number of shares of stock which the corporation shall
have authority to issue is Five Hundred Million (500,000,000) shares,
all of one class, of the par value of One Cent ($0.01) each and of the
aggregate par value of Five Million Dollars ($5,000,000.00).
FIFTH: The number of directors of the corporation shall be Six (6),
which may be changed in accordance with the by-laws of the corporation.
The names of the directors who shall act until the first annual meeting or
until their successors are duly chosen and qualify are:
Hans P. Utsch, Lawrence Auriana, Leon Lebensbaum, Gerard M. Grosof,
Pauline Gold and Roger E. Clark.
SIXTH: No holder of shares of stock of any class shall be entitled as a
matter of right to subscribe for or purchase or receive any part of any new
or additional issue of shares of stock of any class or of securities
convertible into shares of stock of any class, whether now or hereafter
authorized or whether issued for money, for a consideration other than
money or by way of dividend.
No holder of shares of any class shall be entitled to the right of
cumulative voting in any election of directors.
The corporation reserves the right from time to time to make any
amendment of its charter, now or hereafter
<PAGE>
authorized by law, including any amendment which alters the contract
rights, as expressly set forth in its charter, of any outstanding stock.
SEVENTH: The duration of the corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned incorporators of THE KAUFMANN FUND,
INC. who executed the foregoing Articles of Incorporation hereby
acknowledge the same to be their act and further acknowledge that, to the
best of their knowledge the matters and facts set forth therein are true in
all material respects under the penalties of perjury.
Dated the 25th day of February, 1992.
/s/ Timothy F. O'Connell
-----------------------------
/s/ Janice C. Naulty
-----------------------------
-----------------------------
<PAGE>
THE KAUFMANN FUND, INC.
ARTICLES OF AMENDMENT
The Kaufmann Fund, Inc., a Maryland Corporation having its principal
office in Baltimore City, Maryland hereby certifies to the State Department
of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article Third of the Articles of Incorporation and inserting in lieu
thereof the following:
THIRD: The total number of shares of stock which the corporation
shall have authority to issue is Five Hundred Million (500,000,000)
shares, all of one class, of the par value of Ten Cents ($.10) each and
of the aggregate par value of Fifty Million Dollars ($50,000,000).
By adding to the Articles of Incorporation a new Article Eighth which
shall be as follows:
To the fullest extent permitted by Maryland and federal statutory
and decisional law, as amended or interpreted, no director or officer
of this Corporation shall be personally liable to the Corporation or
the holders of Shares for money damages and each director and officer
shall be indemnified by the Corporation; provided, however, that
nothing herein shall be deemed to protect any director or officer of
the Corporation against any liability to the Corporation or the holders
of Shares to which such director or officer would otherwise be subject
by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her
office.
Any determination made in good faith and, so far as accounting
matters are involved, in accordance with generally accepted accounting
principles by or pursuant to the direction of the Board of Directors,
shall be final and conclusive, and shall be binding upon the
Corporation and all holders of Shares, past, present and future, and
Shares are issued and sold on the condition and undertaking, evidenced
by acceptance of certificates for such Shares by, or confirmation of
such Shares held for the account of, any holder, that any and all such
determinations shall be binding as aforesaid.
<PAGE>
Nothing contained herein shall be construed to protect any
director or officer of the Corporation against any liability to the
Corporation or the holders of Shares to which such director or officer
would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in the
conduct of his or her office.
SECOND: The board of directors of the Corporation by unanimous written
consent pursuant to Section 2-408 of Corporations and Associations Article
of the Annotated Code of Maryland, duly adopted a resolution in which was
set forth the foregoing amendment to the charter, declaring that the said
amendment of the charter as proposed was advisable and directing that it be
submitted for action thereon by the stockholders of the Corporation.
THIRD: That the said amendment has been consented to and authorized by
the holders of all the issued and outstanding stock, entitled to vote, by a
written consent given in accordance with the provisions of Section 2-505 of
Corporations and Associations Article of the Annotated Code of Maryland,
and filed with the records of stockholders meetings.
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by
the stockholders of the Corporation.
FIFTH: (a) The total number of shares of stock which the Corporation
was heretofore authorized to issue is Five Hundred Million (500,000,000)
shares, all of one class, of the par value of One Cent ($.01) each and of
the aggregate par value of Five Million Dollars ($5,000,000.00).
(b) The par value of shares of stock is increased by this
amendment to Five Hundred Million (500,000,000) shares all of
<PAGE>
one class, of the par value of Ten Cents ($.10), and of the aggregate
par value of Fifty Million Dollars ($50,000,000.00).
IN WITNESS WHEREOF, The Kaufmann Fund, Inc. has caused these presents
to be signed in its name and on its behalf by its President and witnessed
by its Secretary on December 4th, 1992.
The Kaufmann Fund, Inc.
---------------------------------------
By /s/ Hans P. Utsch
------------------------------------
Hans P. Utsch, President
Witness: (Attest)
/s/ Lawrence Auriana
- --------------------------------------
Lawrence Auriana, Secretary
THE UNDERSIGNED, President of The Kaufmann Fund, Inc., who executed on
behalf of said corporation the foregoing Articles of Amendment, of which
this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to the
corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/ Hans P. Utsch
---------------------------------------
Hans P. Utsch, President
<PAGE>
THE KAUFMANN FUND, INC.
ARTICLES OF AMENDMENT
The Kaufmann Fund, Inc., a Maryland Corporation having its principal
office in Baltimore City, Maryland hereby certifies to the State Department
of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by adding to
the Articles of Incorporation a new Article Fourth (g) which shall be as
follows:
(g) The corporation shall have the right to redeem securities of
which it is the issuer in assets other than cash and if the Board of
Directors deems it to be not in the best interests of the remaining
shareholders of the corporation to make payment on redemption wholly in
cash, the corporation may pay the redemption proceeds, in whole or in
part, by a distribution in kind of securities from the portfolio of the
corporation in lieu of cash.
SECOND: The board of directors of the Corporation by unanimous written
consent pursuant to Section 2-408 of Corporations and Associations Article
of the Annotated Code of Maryland, on February 4, 1993, duly adopted a
resolution in which was Set forth the foregoing amendment to the charter,
declaring that the said amendment of the charter as proposed was advisable
and directing that it be submitted for action thereon by the stockholders
of the Corporation.
THIRD: That the said amendment has been consented to and authorized by
the holders of all the issued and outstanding stock, entitled to vote, by a
written consent given in accordance with the provisions of Section 2-505 of
Corporations and Associations
<PAGE>
Article of the Annotated Code of Maryland, and filed with the records
of stockholders meetings.
FOURTH: The amendment of the charter of the Corporation as hereinabove
set forth has been duly advised by the board of directors and approved by
the stockholders of the Corporation.
IN WITNESS WHEREOF, The Kaufmann Fund, Inc. has caused these presents
to be signed in its name and on its behalf by its President and witnessed
by its Secretary on February 4, 1993.
The Kaufmann Fund, Inc.
--------------------------------------
By /s/ Hans P. Utsch
-----------------------------------
Hans P. Utsch, President
Witness: (Attest)
/s/ Olga Mendez
- ---------------------------------------
Olga Mendez, Ass't. Secretary
THE UNDERSIGNED, Hans P. Utsch, President of The Kaufmann Fund, Inc.,
who executed on behalf of said corporation the foregoing Articles of
Amendment, of which this certificate is made a part, hereby acknowledges,
in the name and on behalf of said corporation, the foregoing Articles of
Amendment to the corporate act of said corporation and further certifies
that, to the best of his knowledge, information and belief, the matters and
facts set forth therein with respect to the approval thereof are true in
all material respects, under the penalties of perjury.
/s/ Hans P. Utsch
--------------------------------------
Hans P. Utsch, President
<PAGE>
The Kaufmann Fund, Inc.
ARTICLES OF AMENDMENT
The Kaufmann Fund, Inc., a Maryland Corporation that is registered with
the U.S. Securities & Exchange Commission as an open-end, diversified
management investment company and has its principal office in Baltimore
City, Maryland (hereinafter called the Corporation), hereby certifies to
the State Department of Assessments and Taxation of Maryland, that:
FIRST: The charter of the Corporation is hereby amended by striking out
Article Third of the Articles of Incorporation as heretofore
amended, and inserting in lieu thereof the following:
THIRD: The total number of shares of stock which the
corporation shall have authority to issue is One Billion
(1,000,000,000) shares, all of one class, of the par value of One
cent ($.01) each and of the aggregate par value of Ten Million
Dollars ($10,000,000.00).
SECOND: The board of directors of the Corporation, in accordance with the
provisions of Section S2-105(c) of the Corporations and
Associations Article of the Annotated Code of Maryland, duly
adopted a resolution in which was set forth the foregoing amendment
to the charter, declaring that the said amendment of the charter as
proposed was advisable.
THIRD: (a) The total number of shares of stock which the Corporation was
heretofore authorized to issue is Five Hundred Million
(500,000,000) shares, all of one class, of the par value of One
cent ($.01) each and of the
<PAGE>
aggregate par value of Five Million Dollars ($5,000,000.00).
(b) The total number of shares of all classes of stock is increased
by this amendment to One Billion (1,000,000,000) shares of the par
value of One cent ($.01) each and of the aggregate par value of
Ten Million Dollars ($10,000,000.00), all of one class.
The Kaufmann Fund, Inc.
By /s/ Hans P. Utsch
-----------------------------------
HANS P. UTSCH, President
Witness: (Attest)
/s/ Lawrence Auriana
- ---------------------------------------
LAWRENCE AURIANA, Secretary
THE UNDERSIGNED, President of the Kaufmann Fund, Inc., who executed on
behalf of said corporation the foregoing Articles of Amendment, of which
this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Amendment to be the
corporate act of said corporation and further certifies that, to the best
of his knowledge, information and belief, the matters and facts set forth
therein with respect to the approval thereof are true in all material
respects, under the penalties of perjury.
/s/ Hans P. Utsch
--------------------------------------
HANS P. UTSCH, President
Exhibit 2
THE KAUFMANN FUND, INC.
(A MARYLAND CORPORATION)
----------------------------------
B Y - L A W S
----------------------------------
ARTICLE I
OFFICES
Section 1.1. PRINCIPAL OFFICE. The principal office of the
corporation in the State of Maryland shall be located at the address where
the corporation's resident agent maintains its principal place of business
in said State.
Section 1.2. ADDITIONAL OFFICES. The corporation may have additional
offices at such places within or without the State of Maryland as the Board
of Directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. DEFINITIONS OF STOCK AND STOCKHOLDER. As used in these
By-Laws, unless otherwise specified or the context otherwise requires, the
term "stock" shall mean stock of the
<PAGE>
corporation of any class or classes, and the term "stockholder" or
"stockholders" shall mean a holder or the holders of stock of the
corporation of any class or classes.
Section 2.2. TIME AND PLACE. All meetings of stockholders shall be
held at such time and at such place within the United States as the Board
of Directors may from time to time determine in accordance with any
applicable provisions of law, the Articles of Incorporation and these
By-Laws.
Section 2.3. ANNUAL MEETING. So long as the corporation is registered
as an investment company under the Investment Company Act of 1940 (the
"1940 Act," such term to include the rules and regulations promulgated
under the 1940 Act, unless otherwise specified or the context otherwise
requires), annual meetings of the stockholders shall not be held, except
when required to be held by the 1940 Act or by the Maryland General
Corporation Law or when called by the Board of Directors or by an officer
or officers authorized to take such action by the Board of Directors.
If in any calendar year the corporation is required or elects to hold an
annual meeting, the meeting shall be held on such day, not a Saturday,
Sunday or legal holiday, as the Board of Directors or the officer or
officers calling the meeting may prescribe. At each such annual meeting,
the stockholders shall elect a Board of Directors and transact
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such other business as may properly come before the meeting. The
provisions of these By-Laws which contemplate the holding of an annual
meeting of stockholders shall be suspended during any calendar year in
which no annual meeting of stockholders is held.
Section 2.4. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, may be called by the Board of Directors, the
Chairman of the Board and any other officer or officers authorized to take
such action by the Board. Special meetings of the stockholders shall also
be called by the Secretary upon the written request of the holders of
shares entitled to cast not less than 25% of all the votes entitled to be
cast at such meeting. In the case of a meeting called upon the request of
stockholders, the request of stockholders for such meeting shall state the
purpose of such meeting and the matters proposed to be acted on at such
meeting and the Secretary shall inform the stockholders who made the
request of the reasonably estimated cost of preparing and mailing a notice
of the meeting. On payment of such costs to the corporation, the Secretary
shall give notice to each stockholder entitled to notice of the meeting.
Unless requested by stockholders entitled to cast a majority of all the
votes entitled to be cast at the meeting, a special meeting need not be
called to consider any matter which is substantially the same as a matter
voted on at any special
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meeting of the stockholders held during the preceding twelve months.
Section 2.5. NOTICE OF MEETINGS. Not less than ten (10) nor more than
ninety (90) days before each meeting of stockholders, the Secretary shall
give to each stockholder entitled to vote at such meeting or entitled to
notice of such meeting written or printed notice stating the time and place
of the meeting and, in the case of a special meeting or as otherwise may be
required by statute, the purpose for which the meeting is called, either by
mail or by presenting it to such stockholder personally or by leaving it at
his residence or usual place of business. If mailed, such notice shall be
deemed to be given when deposited in the United States mail addressed to
the stockholder at his post office address as it appears on the records of
the corporation, with postage thereon prepaid.
Section 2.6. SCOPE OF NOTICE. No business shall be transacted at a
special meeting of stockholders except that specifically designated in the
notice or in a duly executed waiver of notice of such meeting. Any
business of the corporation may be transacted at any annual meeting of
stockholders without being specifically designated in the notice of such
meeting, except such business as is required by law to be stated in such
notice.
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Section 2.7. QUORUM; ADJOURNMENTS. Subject to any higher quorum
requirement imposed by applicable law or the Articles of Incorporation or
By-Laws, at any meeting of stockholders, the presence in person or by proxy
of stockholders entitled to cast a majority of all the votes entitled to be
cast at such meeting shall constitute a quorum; provided, however, that the
Board of Directors shall have the authority to decrease the number of votes
required to constitute a quorum to not less than one-third of all the votes
entitled to be cast at such meeting; and provided further, that this
section shall not affect any applicable requirement of law or the Articles
of Incorporation for the vote necessary for the adoption of any measure.
In the absence of a quorum, the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at such meeting
shall have power to adjourn the meeting from time to time without notice
other than announcement at the meeting until such quorum shall be present;
and at any meeting at which a quorum shall be present, the holders of a
majority of the shares present or represented by proxy shall have the power
to adjourn the meeting from time to time without notice other than
announcement at such meeting; provided, however, that written notice shall
be given as required by Section 2.4 if such meeting is adjourned to a date
more than 120 days after the record date originally scheduled with respect
to such meeting.
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At any such adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted had a quorum
been present at the time originally fixed for the meeting.
Section 2.8. VOTING. At any meeting of stockholders at which a quorum
is present, any election of a director or directors shall be determined by
a plurality of the votes cast and a majority of the votes cast shall be
sufficient to approve any other matter which may properly come before the
meeting, unless more than a majority of the votes cast is required by law
or the Articles of Incorporation for the approval of such matter. Except
as otherwise required by law or provided for in the Articles of
Incorporation, if two or more classes of stock are entitled to vote
separately on any matter, the matter shall be approved by a majority of the
votes cast by each class. Fractional shares of stock shall be entitled to
fractional votes.
Section 2.9. PROXIES. A stockholder may vote the shares of stock
owned of record by him, either in person or by proxy executed in writing by
the stockholder or by his duly authorized attorney in fact. Such proxy
shall be filed with the secretary of the corporation before or at the time
of the meeting. No proxy shall be valid after eleven months from the date
of its execution, unless otherwise provided in the proxy.
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Section 2.10. INSPECTORS. At any meeting of stockholders, the
chairman of the meeting may appoint one or more persons as inspectors for
such meeting. Such inspectors shall ascertain and report the number of
shares represented at the meeting, including those stockholders
represented by proxy based upon the inspectors' determination of the
validity and effect of proxies, count all votes, report the results and
perform such other acts as are proper to conduct the election and voting.
Each report of an inspector shall be in writing and signed by him or by a
majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority
shall be the report of the inspectors. The report of the inspector or
inspectors on the number of shares represented at the meeting and the
results of the voting shall be prima facie evidence thereof.
Section 2.11. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if a consent in writing, setting forth such action, is signed by
each stockholder entitled to vote on the matter, and such consent is filed
with the minutes of proceedings of the stockholders.
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Section 2.12. VOTING BY BALLOT. Voting on any question or in any
election shall be by ballot if requested by any stockholder entitled to
vote, but, unless such a request is made, may be conducted in any manner
determined by the chairman of the meeting.
ARTICLE III
DIRECTORS
Section 3.1. FUNCTION AND POWERS. The business and affairs of the
corporation shall be managed under the direction of its Board of Directors.
All powers of the corporation may be exercised by or under authority of the
Board of Directors, except as conferred on or reserved to any specified
group of directors or to the stockholders by law or by the Articles of
Incorporation or these By-Laws.
Section 3.2. NUMBER, ELECTION AND TENURE. The first Board of
Directors shall consist of the number of directors named in the Articles of
Incorporation. Thereafter, the number of directors constituting the entire
Board of Directors shall be fixed from time to time by a majority of the
entire Board but shall not be less than the minimum number required by the
provisions of the General Corporation Law of the State of Maryland, or any
successor statute thereto, nor more than fifteen (15). No decrease in such
number of directors shall shorten the
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tenure of office of any incumbent director. Each director named in the
Articles of Incorporation or elected at an annual meeting of stockholders
held pursuant to Section 2.3 or as provided in Sections 3.3 or 3.5 shall
hold office until his successor is duly elected and qualifies or until his
earlier displacement from office by resignation, removal or otherwise.
Section 3.3. VACANCIES. Unless otherwise required by law, any vacancy
on the Board of Directors for any cause other than an increase in the
number of directors may be filled by vote of a majority of the remaining
directors, although such majority is less than a quorum. Any vacancy on
the Board of Directors by reason of an increase in the number of directors
may be filled by vote of a majority of the entire Board of Directors. The
stockholders may fill any vacancy resulting from the removal by
stockholders of any director in the manner provided in Section 3.4.
Section 3.4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may
resign at any time by written notice to the corporation. The stockholders
may, at any time, remove any director, with or without cause, by the
affirmative vote of a majority of all the votes entitled to be cast for the
election of directors and may elect a successor to fill any resulting
vacancy for the balance of the tenure of office of the removed director.
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Section 3.5. COMPENSATION. The Board of Directors shall determine and
from time to time fix the compensation payable to directors for their
services to the corporation in that capacity, subject, however, to such
limitations with respect thereto as may be determined from time to time by
the stockholders. Such compensation may consist of a fixed annual fee or a
fixed fee for attendance at meetings of the Board of Directors or of any
committee of the Board of which the directors receiving such fees are
members, or a combination of a fixed annual fee and a fixed fee for
attendance. In addition, the Board of Directors may authorize the
reimbursement of directors for their expenses for attendance at meetings of
the Board or of any committee of the Board of which they are members.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
Section 3.6. ANNUAL MEETINGS. The directors shall hold an annual
meeting for the purposes of electing officers, appointing committees and
transacting such other business as may properly come before the meeting.
Each annual meeting of directors shall be held at such place within or
without the State of Maryland, as the Board of Directors shall prescribe in
advance of such annual meeting, and no other notice shall be necessary in
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order lawfully to convene and conduct such annual meeting of directors,
provided a quorum shall be present.
Section 3.7. REGULAR MEETINGS. The Board of Directors may hold
regular meetings at such time and place, within or without the State of
Maryland, as shall from time to time be fixed in advance by the Board, and
no other notice of such meetings shall be required.
Section 3.8. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board
or a majority of the directors then in office. The person or persons by
whom or at whose request a special meeting is called may fix the time and
place, within or without the State of Maryland, for holding such meeting.
Section 3.9. NOTICE. Notice of any special meeting shall be given by
written notice delivered personally, telegraphed or mailed to each director
at his business or residence address. Notices personally delivered or
given by telegram shall be given at least 24 hours prior to the meeting.
Notice by mail shall be given at least two (2) days prior to the meeting.
If mailed, such notice shall be deemed to be given when deposited in the
United States mail properly addressed, with postage thereon prepaid. If
notice be given by telegram, such
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notice shall be deemed to be given when the telegram is delivered to
the telegraph company. Neither the business to be transacted at, nor the
purpose of, any annual, regular or special meeting of the Board of
Directors need be stated in the notice, unless specifically required by
law, the Articles of Incorporation or these By-Laws.
Section 3.10. QUORUM; ADJOURNMENTS. A majority of the number of
directors constituting the entire Board of Directors shall constitute a
quorum for transaction of business at any meeting of the Board, provided,
that, if less than a majority of such number of directors is present at any
such meeting, a majority of the directors present or the sole director
present may adjourn the meeting from time to time without further notice
until a quorum is present, and provided further, that if one or more
directors present at the time that any meeting of the Board of Directors
is convened shall subsequently withdraw from the meeting before the
transaction of any item or items of business specified in the notice of
meeting or in a waiver of notice thereof duly executed by such withdrawing
director or directors, then except as otherwise provided by applicable law
or in the Articles of Incorporation, the quorum required to transact such
item or items of business shall be reduced to one-third of the entire Board.
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Section 3.11. VOTING. The action of the majority of the directors
present at a meeting at which a quorum is present shall be the action of
the Board of Directors, unless the concurrence of a great proportion or of
any specified group of directors is required for such action by law, the
Articles of Incorporation or these By-Laws.
Section 3.12. PARTICIPATION IN MEETINGS BY TELEPHONE. Members of the
Board of Directors may participate in a meeting by means of a conference
telephone or similar communications equipment if all persons participating
in the meeting can hear each other at the same time. Participation in a
meeting by these means shall constitute presence in person at the meeting
for all purposes except compliance with provisions of the 1940 Act or of
rules thereunder requiring that votes of directors be cast in person at a
meeting.
Section 3.13. INFORMAL ACTION BY DIRECTORS. Except as otherwise
prescribed by or under the 1940 Act, any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a
meeting, if a consent in writing to such action is signed by each director
and such written consent is filed with the minutes of proceedings of the
Board of Directors.
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ARTICLE IV
COMMITTEES AND ADVISORY BOARD
Section 4.1. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors
may appoint from among its members one or more committees, each consisting
of two (2) or more directors and having such title as the Board may
consider to be properly descriptive of its function, except that not more
than one committee shall be designated as the Executive Committee. Each
such committee shall serve at the pleasure of the Board of Directors.
Section 4.2. POWERS; MINUTES; PROCEDURES. The Board of Directors may
delegate to any of the committees appointed under Section 4.1 any of the
powers of the Board of Directors, except the power to: (1) declare
dividends or distributions on stock; (2) issue stock except pursuant to a
general formula or method specified by the Board of Directors by resolution
or by adoption of a stock option or other plan; (3) recommend to the
stockholders any action which requires stockholder approval; (4) amend the
By-Laws; or (5) approve any merger or share exchange which does not
require stockholder approval. Each committee shall keep minutes or other
appropriate written evidence of its meetings or proceedings and shall
report the same to the Board of Directors as and when requested by the
Board, and shall observe
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such other procedures with respect to its meetings and proceedings as
are prescribed in these By-Laws, or, to the extent not prescribed herein,
as may be fixed by the Board of Directors or by such committee under
authority granted by the Board.
Section 4.3. ALTERNATE MEMBERS OF COMMITTEES. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint a director to act in
the place of such absent member.
Section 4.4. PARTICIPATION IN MEETINGS BY TELEPHONE. Members of a
committee of the Board of Directors may participate in a meeting by means
of a conference telephone or similar communications equipment if all
persons participating in the meeting can hear each other at the same time.
Participation in a meeting by these means shall constitute presence in
person at the meeting for all purposes except compliance with provisions of
the 1940 Act or of rules thereunder requiring that votes of directors be
cast in person at a meeting.
Section 4.5. INFORMAL ACTION BY COMMITTEES. Except as otherwise
prescribed by or under the 1940 Act, any action required or permitted to be
taken at any meeting of a committee of the Board of Directors may be taken
without a meeting, if a consent in writing to such action is signed by each
member of the
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committee and such written consent is filed with the minutes of proceedings
of such committee.
ARTICLE V
WAIVER OF NOTICE
Whenever any notice is required to be given pursuant to law, the
Articles of Incorporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to such notice, or, in the case of
any waiver of notice of any meeting of stockholders, signed by the proxy
for a person entitled to notice thereof, whether before or after the time
stated therein, shall be deemed equivalent to the giving of such notice.
Neither the business to be transacted at nor the purpose of any meeting
need be set forth in the waiver of notice, unless specifically required by
law, the Articles of Incorporation or these By-Laws. The attendance of any
person at any meeting in person, or, in the case of a meeting of
stockholders, by proxy, shall constitute a waiver of notice of such
meeting.
ARTICLE VI
OFFICERS
Section 6.1. EXECUTIVE OFFICERS. The executive officers of the
corporation shall be a Chairman of the Board, a
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President, a Secretary and a Treasurer. If the Board of Directors
shall elect one or more Vice-Presidents, each such Vice-President shall be
an executive officer. The Chairman of the Board shall be elected from
among the directors, but no other executive officer need be a member of the
Board of Directors. Any two or more executive offices, except those of
President and Vice-President, may be held by the same person. A person
holding more than one office may not act in more than one capacity to
execute, acknowledge or verify on behalf of the corporation an instrument
required by law to be executed, acknowledged or verified by more than one
officer. The executive officers of the corporation shall be elected by the
Board of Directors at the annual meeting of the Board.
Section 6.2. OTHER OFFICERS AND AGENTS. The Board of Directors may
also elect or may delegate to the Chairman of the Board authority to
appoint, remove, or fix the duties, compensation or terms of office of one
or more assistant vice-presidents, assistant secretaries and assistant
treasurers, and such other officers and agents as the Board shall at any
time and from time to time deem to be advisable.
Section 6.3. TENURE, RESIGNATION AND REMOVAL. Each officer of the
corporation shall hold office until his successor is elected or appointed
or until his earlier displacement from
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office by resignation, removal or otherwise; provided that if the term
of office of any officer elected or appointed pursuant to Section 6.2 shall
have been fixed by the Board of Directors or by the Chairman of the Board
acting under authority delegated by the Board, such officer shall cease to
hold such office no later than the date of expiration of such term,
regardless of whether any other person shall have been elected or appointed
to succeed him. Any officer of the corporation may resign at any time by
written notice to the corporation. Any officer or agent of the corporation
may be removed at any time by the Board of Directors or by the Chairman of
the Board acting under authority delegated by the Board pursuant to Section
6.2 if in its or his judgment the best interests of the corporation would
be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights between
the corporation and such officer or agent.
Section 6.4. VACANCIES. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors or by
the Chairman of the Board acting under authority delegated by the Board
pursuant to Section 6.2. Each officer elected or appointed to fill a
vacancy shall hold office
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for the balance of the term for which his predecessor was elected or
appointed.
Section 6.5. COMPENSATION. The compensation, if any, of all officers
of the corporation shall be fixed by the Board of Directors or by the
Chairman of the Board acting under authority delegated by the Board
pursuant to Section 6.2.
Section 6.6. AUTHORITY AND DUTIES. All officers as between themselves
and the corporation shall have such powers, perform such duties and be
subject to such restrictions, if any, in the management of the corporation
as may be provided in these By-Laws, or, to the extent not so provided, as
may be prescribed by the Board of Directors or by the Chairman of the Board
acting under authority delegated by the Board pursuant to Section 6.2.
Section 6.7. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
be the chief executive officer of the corporation. He shall have general
and active management of the business of the corporation, shall see to it
that all orders, policies and resolutions of the Board of Directors are
carried into effect, and in connection therewith shall be authorized to
delegate to any Vice-President of the corporation such of his powers and
duties as Chairman of the Board and at such times and in such manner as he
shall deem advisable. In the absence or
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disability of the President, the Chairman of the Board shall preside at
all meetings of the stockholders and of the Board of Directors; and he
shall have such other powers and perform such other duties as are incident
to the office of Chairman of the Board and as the Board of Directors may
from time to time prescribe.
Section 6.8. PRESIDENT. The President shall preside at meetings of
the stockholders and of the Board of Directors, and shall have such other
powers and duties as may be prescribed by the Board. The President shall
in the absence or disability of the Chairman of the Board exercise the
powers and perform the duties of the Chairman of the Board.
Section 6.9. VICE-PRESIDENTS. The Vice-President, if any, or, if
there be more than one, the Vice-Presidents, shall assist the President in
the management of the business of the corporation and the implementation of
orders, policies and resolutions of the Board of Directors at such times
and in such manner as the President may deem to be advisable. If there be
more than one Vice-President, the Board of Directors may designate one as
the executive Vice-President, in which case he shall be first in order of
seniority, and the Board may also grant to other Vice-Presidents such
titles as shall be descriptive of their respective functions or indicative
of their
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relative seniority. In the absence or disability of both the Chairman
of the Board and the President, the Vice-President, or, if there be more
than one, the Vice-Presidents in the order of their relative seniority,
shall exercise the powers and perform the duties of those officers; and the
Vice-President or Vice-Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed by the Chairman of
the Board or by the Board of Directors.
Section 6.10. ASSISTANT VICE-PRESIDENT. The assistant vice-president,
if any, or if there be more than one, the assistant vice-presidents, shall
perform such duties as may from time to time be prescribed by the Board of
Directors or by the Chairman of the Board acting under authority delegated
by the Board pursuant to Section 6.2.
Section 6.11. SECRETARY. The Secretary shall (a) keep the minutes of
the meetings and proceedings and any written consents evidencing actions of
the stockholders, the Board of Directors and any committees of the Board in
one or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these By-Laws or as
required by law; (c) be custodian of the corporate records and of the seal
of the corporation, and, when authorized by the Board of Directors, cause
the corporate seal to be affixed to any document
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requiring it, and when so affixed attested by his signature as Secretary
or by the signature of an assistant secretary; and (d) in general,
perform such other duties as from time to time may be assigned to him
by the Board of Directors or by the Chairman of the Board.
Section 6.12. ASSISTANT SECRETARIES. The assistant secretary, if any,
or, if there be more than one, the assistant secretaries in the order
determined by the Board of Directors or by the Chairman of the Board, shall
in the absence or disability of the Secretary exercise the powers and
perform the duties of the Secretary, and he or they shall perform such
other duties as the Board of Directors, the Chairman of the Board or the
Secretary may from time to time prescribe.
Section 6.13. TREASURER. The Treasurer shall be the chief financial
officer of the corporation. The Treasurer shall keep full and accurate
accounts of receipts and disbursements in books belonging to the
corporation, shall deposit all moneys and other valuable effects in the
name and to the credit of the corporation in such depositories as may be
designated by the Board of Directors, and shall render to the Board of
Directors and the Chairman of the Board, at the regular meetings of the
Board or whenever they may require it, an account of all his
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transactions as Treasurer and of the financial condition of the
corporation.
If required by the Board of Directors, the Treasurer shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of
his death, resignation, retirement or removal from office, all books,
papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the corporation.
Section 6.14. ASSISTANT TREASURERS. The assistant treasurer, if any,
or, if there be more than one, the assistant treasurers in the order
determined by the Board of Directors or by the Chairman of the Board, shall
in the absence or disability of the Treasurer exercise the powers and
perform the duties of the Treasurer, and he or they shall perform such
other duties as the Board of Directors, the Chairman of the Board or the
Treasurer may from time to time prescribe.
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ARTICLE VII
CONTRACTS, CHECKS, DEPOSITS AND REPORTS
Section 7.1. CONTRACTS. The Board of Directors may authorize any
officer or agent to enter into any contract or to execute and deliver any
instrument in the name and on behalf of the corporation, and such authority
may be general or confined to specific instances.
Section 7.2. CHECKS AND DRAFTS. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to
time be determined by the Board of Directors.
Section 7.3. ANNUAL REPORT. The Chairman of the Board or another
executive officer of the corporation designated by the Board of Directors
shall prepare or cause to be prepared annually a full and correct statement
of the affairs of the corporation, including a balance sheet and a
statement of the results of operations for the preceding fiscal year, which
shall be submitted at the annual meeting of the stockholders and filed within
20 days thereafter at the principal office of the corporation in the State
of Maryland.
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ARTICLE VIII
SHARES OF STOCK
Section 8.1. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a certificate or certificates which shall represent and certify
the number of full shares of each class of stock held by him in the
corporation; provided, however, that the corporation need not issue a
certificate to any stockholder until and unless demand for a certificate or
certificates shall be made upon the corporation or its transfer agent and
shall not be required to issue certificates representing fractional shares,
and provided further, that a stock certificate shall not be issued until
the stock represented by it is fully paid. Each certificate shall be
signed by the Chairman of the Board, President or a Vice-President and
countersigned by the Secretary or an assistant secretary or the Treasurer
or an assistant treasurer and may be sealed with the corporate seal and
shall contain such recitals as may be required by statute. The signatures
on a certificate may be either manual or facsimile. A certificate is valid
and may be issued whether or not an officer who signed it is still an
officer when it is issued. A full record of the issuance of each
certificate and the identifying number assigned thereto shall be made
on the
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books of the corporation usually kept for that purpose or required by
statute.
Section 8.2. TRANSFERS OF STOCK. Upon surrender to the corporation or
the transfer agent of the corporation of a stock certificate duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, the corporation shall issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction
upon its books. Shares of stock of the corporation not represented by
certificate shall be transferred by recording the transaction on the books
of the corporation by the transfer agent of the corporation upon
presentation of proper evidence of succession, assignment or authority
to transfer.
The corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest
in such shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the
laws of the State of Maryland.
Section 8.3. LOST CERTIFICATES. The Board of Directors may establish
procedures pursuant to which a new stock
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certificate or certificates may be issued in place of any certificate
or certificates theretofore issued by the corporation which have been
mutilated or which are alleged to have been lost, stolen or destroyed. The
Board of Directors, in its discretion and as a condition precedent to the
issuance of any new certificate, may include among such procedures a
requirement that the owner of any certificate alleged to have been lost,
stolen or destroyed, or his legal representative, furnish the corporation
with a bond, in such sum and with such surety or sureties as it may direct,
as indemnity against any claim that may be made against the corporation in
respect of such lost, stolen or destroyed certificate.
Section 8.4. FIXING OF RECORD DATE. The Board of Directors may set a
record date for the purpose of determining stockholders entitled to notice
of, or to vote at, any meeting of stockholders or at any adjournment
thereof in respect of which a new record date is not fixed, or stockholders
entitled to receive payment of any dividend or the allotment of any other
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, or in order to make a determination of stockholders for
any other proper purpose. Such date may not be prior to the close of
business on the day such date is fixed. Such date, in any case, shall be
not more than ninety (90) days, and in case of a meeting of stockholders
not less than ten (10)
- 27 -
<PAGE>
days, before the date on which the meeting or particular action
requiring such determination of stockholders is to be held or taken. If no
record date is fixed (a) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be the
later of: (i) the close of business on the day on which the notice of
meeting is first mailed to any stockholder; or (ii) the 30th day before the
meeting; and (b) the record date for the determination of stockholders
entitled to receive payment of a dividend or an allotment of any other
rights shall be at the close of business on the day on which the resolution
of the Board of Directors, declaring the dividend or allotment of rights,
is adopted.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this section, such determination
shall apply to any adjournment thereof, subject to any applicable
requirement of Section 2.6 for additional notice of the adjourned meeting.
Section 8.5. STOCK LEDGER. The corporation shall maintain at its
principal office or at the office of its counsel, accountants or transfer
agent, an original or duplicate stock ledger containing the name and
address of each stockholder and the number of shares of stock of each class
held by such stockholder. Such stock ledger may be in written form
or in any
- 28 -
<PAGE>
other form which can be converted within a reasonable time into written
form for visual inspection.
ARTICLE IX
FISCAL YEAR
The Board of Directors shall have the power, from time to time, to fix
the fiscal year of the corporation, provided that if the Board shall not
have taken action to fix a different fiscal year, the fiscal year of the
corporation shall end on December 31 of each year.
ARTICLE X
DIVIDENDS
Dividends upon the shares of stock of the corporation may be declared
by the Board of Directors, subject to the provisions of law and the
Articles of Incorporation. Dividends may be paid in cash, property or
stock of the corporation, subject to the provisions of law, the Articles
of Incorporation and these By-Laws.
- 29 -
<PAGE>
ARTICLE XI
CORPORATE SEAL
The Board of Directors may provide for a suitable corporate seal, in
such form and bearing such inscriptions as it may determine. Whenever the
corporation is required to affix its corporate seal to a document, it shall
be sufficient to meet the requirements of any law, rule or regulation
relating to a corporate seal to place the word "(seal)" adjacent to the
signature of the authorized officer.
ARTICLE XII
INDEMNIFICATION AND INSURANCE
Section 12.1. The corporation shall indemnify any individual who is a
present or former director or officer of the corporation who, by reason of
his position was, is or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter collectively referred to as a
"Proceeding") against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by such director or officer in
connection with such Proceeding, to the fullest extent that such
indemnification may be lawful under Section 2-418 of the General
Corporation Law of Maryland or any
- 30 -
<PAGE>
provision enacted as a successor thereto (hereinafter called the
"applicable Maryland statutory provision"). The corporation may pay any
reasonable expenses so incurred by any director or officer in defending a
Proceeding in advance of the final disposition thereof to the fullest
extent that such advance payment may be lawful under the applicable
Maryland statutory provision. Any payment of indemnification or advance
payment of expenses shall be made subject to and in accordance with the
procedures set forth in the applicable Maryland statutory provision.
However, nothing contained in this Section 12.1 shall protect or purport to
protect any director or officer of the corporation against any liability to
which he would otherwise be subject by reason of willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the
conduct of his office (any such conduct being hereinafter called "Disabling
Conduct").
Section 12.2. Anything in Section 12.1 to the contrary notwithstanding,
no indemnification shall be made by the corporation to any director or
officer unless:
(a) there is a final decision on the merits by a court or other body
before whom the Proceeding was brought that the director or officer
to be indemnified was not liable by reason of Disabling Conduct; or
- 31 -
<PAGE>
(b) in the absence of such a decision, there is a reasonable
determination, based upon a review of the facts, that the director
or officer to be indemnified was not liable by reason of Disabling
Conduct, which determination shall be made by:
(i) the vote of a majority of a quorum of directors who are neither
"interested persons" of the corporation as defined in section
2(a)(19) of the 1940 Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in written opinion.
Section 12.3. Anything in Section 12.1 to the contrary
notwithstanding, any advance payment of expenses by the corporation to any
director or officer of the corporation shall be made only upon the
undertaking by such director or officer to repay the advance unless it is
ultimately determined that he is entitled to indemnification as above
provided, and only if one of the following conditions is met:
(a) the director or officer to be indemnified provides a security for
his undertaking; or
(b) the corporation shall be insured against losses arising by reason
of any lawful advances; or
- 32 -
<PAGE>
(c) there is a determination, based on a review of readily available
facts, that there is reason to believe that the director or officer
to be indemnified ultimately will be entitled to indemnification,
which determination shall be made by:
(i) a majority of a quorum of directors who are neither "interested
persons" of the corporation, as defined in section 2(a)(19) of
the 1940 Act, nor parties to the Proceeding; or
(ii) an independent legal counsel in a written opinion.
Section 12.4. To the fullest extent permitted by the applicable
Maryland statutory provision and Section 17(h) of the 1940 Act, the
corporation may purchase and maintain insurance on behalf of any officer or
director of the corporation, against any liability asserted against him
and incurred by him in and arising out of his position, whether or not the
corporation would have the power to indemnify him against such liability.
- 33 -
<PAGE>
ARTICLE XIII
FEDERAL SUPREMACY
If at a time when the corporation is registered as an investment
company under the 1940 Act, any of the foregoing provisions of these
By-Laws or the General Corporation Law of Maryland shall conflict or be
inconsistent with any applicable provision of the 1940 Act or of any order
thereunder, the applicable provision of the 1940 Act or any order
thereunder shall be controlling and the corporation shall not take any
action thereunder which is in conflict or inconsistent therewith. Without
limiting the generality of the foregoing, if any applicable provision of
the 1940 Act or any order thereunder requires, with respect to any matter
requiring action by the stockholders, the Board of Directors, a committee
of the Board, or a specified group of directors of the corporation, the
affirmative vote of a greater number of shares or directors than would
otherwise be required under the General Corporation Law of Maryland, the
Articles of Incorporation of the corporation or these By-Laws, then that
provision of the 1940 Act or order thereunder shall be controlling.
- 34 -
<PAGE>
ARTICLE XIV
INVESTMENT RESTRICTIONS
The Corporation shall not:
(a) Purchase securities on margin from brokers;
(b) Issue senior securities except to the extent of borrowing;
(c) Concentrate more than 25% of the value of its total assets in
a particular industry;
(d) Purchase the securities of other investment companies, except in
connection with a merger, consolidation, reorganization or
acquisition of assets, unless immediately after a purchase, (i) the
Corporation holds 3% or less of the total outstanding voting stock
of the acquired investment company; (ii) the acquired stock has an
aggregate value equal to 5% or less of the value of the total
assets of the Corporation and (iii) the aggregate value of the
acquired stock and the stock of all other investment companies held
by the Corporation has a value of 10% or less of the total assets
of the Corporation; all such securities must be acquired by the
Corporation in the open market in transactions involving no
commissions or discounts to a
- 35 -
<PAGE>
sponsor or dealer other than customary brokerage commissions;
(e) Lend its portfolio securities, unless the borrower is an
unaffiliated broker, dealer or financial institution that pledges
and maintains cash or equivalent collateral (such as Government
securities) or an irrevocable letter of credit in favor of the
Corporation equal in value at all times to at least 100% of the
value of the securities loaned, provided that the aggregate amount
of such loans shall not exceed 30% of the Corporation's total net
assets;
(f) Make short sales (except for short sales "against the box," which
are short sales made when the Corporation owns securities identical
to those sold short) which will, at the time of making such short
sale transaction and giving effect thereto, cause the aggregate
market value of all securities sold short to exceed 25% of the
value of the Corporation's net assets;
(g) Write, purchase or sell put and covered call options or
combinations thereof unless immediately after purchase of any such
contract the aggregate sum represented by
- 36 -
<PAGE>
premiums paid for such option contracts then held by the Corporation
does not exceed 10% of the Corporation's net assets;
(h) Invest more than 5% of its net assets in warrants; warrants not
listed on the New York or American Stock Exchanges may not exceed
2% of the Fund's net assets;
(i) Invest more than 25% of its net assets in the securities of issuers
domiciled in foreign countries;
(j) Act as an underwriter of securities of other issuers, except that
the Corporation may invest no more than 10% of the value of its
assets (at time of investment) in securities which are not readily
marketable, including repurchase agreements with maturities over
seven days, and restricted securities which the Corporation may not
be free to sell without being deemed an underwriter for purposes of
the Securities Act of 1933 and without registration of such
securities under such Act, in which case the Corporation might be
obliged to pay all or a part of the expenses of such registration;
(k) Invest in commodities, commodity contracts or real estate,
- 37 -
<PAGE>
except that the Corporation may invest in readily marketable
securities of real estate trusts or companies and in master limited
partnership interests traded on a National Securities Exchange;
(l) Borrow money, except from banks in an amount which will not cause
the Corporation's net assets (including the amount borrowed) less
its liabilities (excluding borrowings but including securities
borrowed in connection with short sales) to be less than 300% of
the amount of the borrowing, and then providing that (i) if the
Corporation's assets become less than 3 times the amount of the
Corporation's bank borrowing, the corporation will within 3 days
(not including Saturdays, Sundays or holidays) reduce its bank
borrowing to the extent required to restore such 300% coverage and
(ii) such bank borrowing may be collateralized by the deposit of
portfolio securities, or the segregation of such securities for the
account of the lending bank but in no case will such bank
borrowings exceed 50% of the net assets of the Corporation or the
value of such pledged securities exceed 75% of the Corporation's
total assets;
(m) With respect to 50% of the value of its assets, invest more
- 38 -
<PAGE>
than 5% of the value of its assets in any one issuer, excluding
United States Government securities, or purchase more than 10% of
the outstanding securities of any one issuer;
(n) Participate in a joint securities trading account;
(o) Purchase the securities of an issuer, if any affiliate (including
the Corporation's officers and directors) who individually own more
than 1/2 of 1% of the securities of such issuer, together own more
than 5% of the securities of such issuer;
(p) Invest 20% or more of the Corporation's net assets in securities of
issuers with an operating history of less than 3 years continuous
operation;
(q) Invest in oil, gas or mineral leases;
(r) Make loans except through the purchase of bonds, debentures or
similar obligations (including repurchase agreements subject to the
limitation described in (j) above) which are either publicly
distributed or customarily purchased by institutional investors.
- 39 -
<PAGE>
ARTICLE XIV
AMENDMENT OF BY-LAWS
These By-Laws may be amended or repealed, and new By-Laws may be
adopted, by vote of the stockholders or by the Board of Directors;
provided, however, that any By-Law or amendment to the By-Laws so adopted
by the Board of Directors may be amended or repealed, and any By-Law so
repealed by the Board may be reinstated by vote of the stockholders in
which case the Board shall not thereafter take action with respect to the
By-Laws which is inconsistent with the action so taken by such
stockholders; and provided further, that the Board of Directors shall not
have power to amend or repeal any existing By-Law or to adopt any new
By-Law containing provisions inconsistent with any existing By-Law, which
by its terms may be amended or repealed only by the stockholders.
- 40 -
Exhibit 5
INVESTMENT ADVISORY AGREEMENT
BETWEEN
THE KAUFMANN FUND, INC.
AND
EDGEMONT ASSET MANAGEMENT CORPORATION
-------------------------------------
AGREEMENT made this 14th day of January, 1993, by and between THE
KAUFMANN FUND, INC., a Maryland corporation (hereinafter called the "Fund"),
and EDGEMONT ASSET MANAGEMENT CORPORATION, a New York corporation
(hereinafter called the "Advisor").
The Fund and the Advisor hereby agree as follows:
1. Duties of the Advisor. The Advisor shall, during the term and
subject to the provisions of this Agreement, (i) determine the composition
of the Fund's portfolio, the nature and timing of the changes therein and
the manner of implementing such changes and (ii) provide the Fund with such
investment advisory, research and related services as the Fund may, from
time to time, reasonably require for the investment of its funds. The
Advisor shall perform such duties in accordance with the applicable
provisions of the Fund's Certificate of Incorporation, By-laws and current
prospectus and current statement of additional information, and any
directions it may receive from the Fund's Board of Directors.
2. Expenses Payable by the Fund. Except as otherwise provided in
Paragraphs 1 and 3 hereof, the Fund shall be responsible for effecting
sales and redemptions of its shares, for determining the net asset value
thereof and for all of its other operations and shall pay all
administrative and other costs and expenses attributable to its operations
and transactions, including, without limitation, transfer agent and
custodian fees; legal, administrative and clerical services; rent not to
exceed fair market value for its office space and facilities; auditing;
preparation, printing and distribution of its prospectuses, proxy
statements, stockholders reports and notices; cost of supplies and postage;
Federal and state registration fees; Federal, state and local taxes;
non-affiliated directors' fees; interest on its bank loans; and brokerage
commissions.
3. Expenses Payable by the Advisor. The Advisor shall furnish, without
expense to the Fund, the services of those of the Advisor's officers and
full-time employees who may be duly elected executive officers or directors
of the Fund, subject to their individual consent to serve and to any
limitations imposed by Law, and shall pay all of the salaries and expenses
of the Fund's executive officers. For purposes of this Agreement, only the
President, any Vice President and the Treasurer of the Fund shall be deemed
to be executive officers of the Fund. The Advisor shall also pay (a) any
expenses incurred by the Fund in connection with its promoting the sale
of its
<PAGE>
shares, including advertising, compensation of sales personnel, the
printing and mailing of prospectuses to other than current stockholders and
the printing and mailing of sales literature, except to the extent provided
under the Fund's Distribution Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended, and (b) all expenses which it
may incur in performing its duties under Paragraph 1 hereof, and shall
reimburse the Fund for any space leased by the Fund and occupied by the
Advisor. In the event the Fund shall qualify its shares for sale in any
jurisdiction the applicable statutes or regulations of which expressly
limit the amount of the Fund's total annual expenses, the Advisor shall
reduce its annual investment advisory fee to the extent that the Fund's
total annual expenses (other than brokerage commissions and other capital
items, interest, taxes, extraordinary items and other excludable items,
charges, costs and expenses) exceed the regulations of any such
jurisdiction, so long as the Fund remains so qualified in such
jurisdiction.
4. Compensation of the Advisor. The Fund shall pay to the Advisor and
the Advisor shall accept as compensation for the services which it provides
by the Advisor hereunder, a fee equal to 1-1/2% per annum of the Fund's
average total net assets at the close of business on each day that the
value of its net assets is computed during each fiscal year. Such
compensation shall be accrued on the Fund's books at the close of business
on each day that the value of the Fund's net assets is computed during each
year and shall be payable to the Advisor monthly, on the last day of each
month, and adjusted as of year-end if required.
5. Brokerage Commissions. The Advisor is hereby authorized, to the
fullest extent now or hereafter permitted by law, to cause the Fund to pay
a member of a national securities exchange, broker or dealer an amount of
commission for effecting a securities transaction in excess of the amount
of commission another member of such exchange, broker or dealer would have
charged for effecting that transaction, if the Advisor determines in good
faith that such amount of commission is reasonable in relation to the value
of the brokerage and research services provided by such member, broker or
dealer, viewed in terms of either that particular transaction or the
Advisor's overall responsibilities with respect to the Fund.
6. Limitations on the Employment of the Advisor. The services of the
Advisor to the Fund shall not be deemed exclusive, and the Advisor may
engage in any other business or render similar or different services to
others so long as its services to the Fund hereunder are not impaired
thereby, and nothing in this Agreement shall limit or restrict the right of
any director, officer or employee of the Advisor to engage in any other
business or to devote his time and attention in part to any other business,
whether of a similar or dissimilar nature. So long as this Agreement or
any extension, renewal or amendment remains in effect, the Advisor shall be
the only investment adviser to the Fund, subject to the Advisor's right to
enter into sub-advisory agreements. The Advisor assumes no responsibility
under this Agreement other than to render the services called for
hereunder, and shall not be responsible for any action
2
<PAGE>
of or direction by the Fund's Board of Directors, or any committee
thereof, or any omission by any of them, unless such action or omission has
been caused by the Advisor's gross negligence, willful malfeasance, bad
faith or reckless disregard of its obligations and duties under this
Agreement.
7. Responsibility of Dual Directors, Officers and/or Employees. If
any person who is a director, officer or employee of the Advisor is or
becomes a director, officer and/or employee of the Fund and acts as such in
any business of the Fund pursuant to this Agreement, then such director,
officer and/or employee of the Advisor shall be deemed to be acting in such
capacity solely for the Fund, and not as a director, officer or employee of
the Advisor or under the control or direction of the Advisor, although paid
by the Advisor.
8. Protection of the Advisor. The Advisor shall not be liable to the
Fund for any action taken or omitted to be taken by the Advisor in
connection with the performance of any of its duties or obligations under
this Agreement or otherwise as an investment adviser of the Fund, and the
Fund shall indemnify the Advisor and hold it harmless from and against all
damages, liabilities, costs and expenses (including reasonable attorneys'
fees and amounts reasonably paid in settlement) incurred by the Advisor in
or by reason of any pending, threatened or completed action, suit,
investigation or other proceeding (including an action or suit by or in the
right of the Fund or its security holders) arising out of or otherwise
based upon any action actually or allegedly taken or omitted to be taken by
the Advisor in connection with the performance of any of its duties or
obligations under this Agreement or otherwise as an investment adviser of
the Fund. Notwithstanding the provisions of the preceding sentence of this
Paragraph 8, nothing contained herein shall protect or be deemed to protect
the Advisor against, or entitle or be deemed to entitle the Advisor to
indemnification in respect of, any liability to the Fund or its security
holders to which the Advisor would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of its reckless disregard of its obligations and
duties under this Agreement.
Determination of whether and the extent to which the Advisor is
entitled to indemnification hereunder shall be made by reasonable and fair
means, including (a) a final decision on the merits by a court or other body
before whom the action, suit or other proceeding was brought that the
Advisor was not liable by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of its duties or (b) in the absence of such
a decision, a reasonable determination, based upon a review of the facts,
that the Advisor was not liable by reason of such misconduct by (i) the
vote of a majority of a quorum of the directors of the Fund who are neither
"interested persons" of the Fund (as defined in Section 2(a)(19) of the
Investment Company Act of 1940) nor parties to the action, suit or other
proceedings or (ii) an independent legal counsel in a written opinion.
3
<PAGE>
9. Effectiveness, Duration and Termination of Agreement. This
Agreement was approved by the Fund's Board of Directors, including by a
majority of the disinterested Directors, and by the Fund's sole shareholder
on January 14, 1993. This Agreement shall become effective on the first
day following the effective date of the merger by and between The Kaufmann
Fund, Inc., a New York corporation and the Fund, as survivor of the merger.
This Agreement shall remain in effect until October 30, 1993, and
thereafter shall continue automatically for successive annual periods,
provided that such continuance is specifically approved at least annually
by (a) the vote of the Fund's Board of Directors, or (b) the vote of a
majority of the Fund's outstanding voting shares, provided that in either
event the continuance is also approved by a majority of such directors who
are not parties to this Agreement or "interested persons" (as such term is
defined in the Investment Company Act of 1940) of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
This Agreement may be terminated at any time, without the payment of any
penalty, on 60 days written notice by the vote of a majority of the Fund's
outstanding voting securities or by the vote of a majority of the Fund's
Board of Directors or by the Advisor, and will automatically terminate in
the event of its "assignment" (as such term is defined in the Investment
Company Act of 1940); provided, however, that the provisions of Paragraph 8
of this Agreement shall remain in full force and effect, and the Advisor
shall remain entitled to the benefits thereof, notwithstanding any such
termination. Any notice under this Agreement shall be given in writing,
addressed and delivered or mailed, postage prepaid, to the other party at
its principal office.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
THE KAUFMANN FUND, INC.
Attest:
/s/ Lawrence Auriana By /s/ Hans P. Utsch
- ------------------------------------- -----------------------------------
Lawrence Auriana, Secretary Hans P. Utsch, President
EDGEMONT ASSET MANAGEMENT
CORPORATION
Attest:
/s/ Olga Mendez By /s/ Lawrence Auriana
- ------------------------------------- -----------------------------------
Olga Mendez, Secretary Lawrence Auriana, President
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and
Board of Directors of
The Kaufmann Fund, Inc.
We have audited the accompanying statement of assets and
liabilities of The Kaufmann Fund, Inc., including the schedules of
investments and securities sold short, as of December 31, 1995, and
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 for each of the five
years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management.
Our responsibility is to express an opinion on these financial
statements and financial highlights 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 financial highlights 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 December 31, 1995, by
correspondence with the custodian and brokers. 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 financial highlights
referred to above present fairly, in all material respects, the
financial position of The Kaufmann Fund, Inc. as of December 31, 1995,
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 for each of the five years in the period then
ended, in conformity with generally accepted accounting principles.
Abington, Pennsylvania SANVILLE & COMPANY
January 31, 1996 Certified Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report, dated January 31, 1996, on
the annual financial statements and financial highlights of The
Kaufmann Fund, Inc., which is included in Part A and Part B in Post
Effective Amendment No. 45 to the Registration Statement under the
Securities Act of 1933 and included in the Prospectus and Statement
of Additional Information, as specified, and to the reference made to
us under the caption "Independent Auditors" in the Statement of
Additional Information.
Abington, Pennsylvania SANVILLE & COMPANY
February 8, 1996 Certified Public
Accountants
The Kaufmann Fund, Inc.
Expense Calculations For Fee Table Examples
December 31, 1995
Assumptions: $1,000 investment, 5% no-load annual return, 2.17% expenses
5% - 2.17% = 2.83%
Cumula- Redemp- Redemp- Cumula-
tive tion tion tive
Year Amounts Average Expense % Expenses Expenses Fee % Fee Expenses
- -------------------------------------------------------------------------------
1 1,000 1,014 2.17% 22 22 0.2% 2 24
1,028
2 1,028 1,043 2.17% 23
1,057
3 1,057 1,072 2.17% 23 68 0.2% 2 70
1,087
4 1,087 1,103 2.17% 24
1,118
5 1,118 1,134 2.17% 25 117 0.2% 2 119
1,150
6 1,150 1,167 2.17% 25
1,183
7 1,183 1,200 2.17% 26
1,216
8 1,216 1,233 2.17% 27
1,250
9 1,250 1,268 2.17% 28
1,285
10 1,285 1,303 2.17% 28 251 0.2% 3 254
1,321
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets
all of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, hereunto duly authorized in the City of New York and State
of New York, on the ________ day of March, 1996.
THE KAUFMANN FUND, INC.
/s/ Hans P. Utsch
By: ___________________________
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in
the capacities and on the date indicated:
NAME TITLE DATE
/s/ Hans P. Utsch March 11, 1996
______________________ Director, _________________
HANS P. UTSCH President and
Treasurer
/s/ Lawrence Auriana March 11, 1996
______________________ Chairman of Board, _________________
LAWRENCE AURIANA Director,
Vice President
and Secretary
/s/ Leon Lebensbaum March 11, 1996
______________________ Director _________________
LEON LEBENSBAUM
/s/ Gerard M. Grosof March 11, 1996
______________________ Director _________________
GERARD M. GROSOF
<PAGE>
NAME TITLE DATE
/s/ Pauline Gold March 11, 1996
______________________ Director _________________
PAULINE GOLD
/s/ Roger E. Clark March 11, 1996
______________________ Director _________________
ROGER E. CLARK
COUNSEL'S REPRESENTATION
Post-Effective Amendment No. 45 to the Registration Statement on
Form N-1A of The Kaufmann Fund, Inc. does not contain disclosures which
would render it ineligible to become effective pursuant to paragraph (b)
of Rule 485 under the Securities Act of 1933, as amended.
/s/ Martin V. Miller
--------------------------------
MARTIN V. MILLER,
Counsel for
The Kaufmann Fund, Inc.
