AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 4/28/97
FILE NOS: 2-28049
811-1586
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. _______ / /
Post-Effective Amendment No. 47 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 47
(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
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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, 1996
was filed on February 21, 1997.
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 Y 1, 1 9 9 7
__________________________________________
<PAGE>
PART A
<PAGE>
PROSPECTUS MAY 1, 1997
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, for Automatic Investment Plans and for Payroll Deduction Plans
the minimum initial investment is $500.
PLANS AVAILABLE
The Fund offers Automatic Investment Plans, Payroll Deduction Plans,
Systematic Withdrawal Accounts and The Kaufmann/Reserve Fund Money Market
Switch Plan. The Fund also offers Individual Retirement Accounts ("IRA"s)
and 403(b) Plans. See "Special Investor Services," page ___.
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. The SEC maintains a Web Site
(http://www.sec.gov) that contains the Statement of Additional Information,
material incorporated by reference and other information regarding
registrants that file electronically with the SEC.
<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>
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, Payroll Deduction Plans 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, Payroll
Deduction Plan, Individual Retirement Accounts ("IRAs"), 403(b) Plans and
The Kaufmann/Reserve Fund Money Market Switch Plan (see "Special Investor
Services" at page ___).
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>
The Kaufmann Fund, Inc.
FEE TABLE
The following table summarizes your maximum transaction costs from
investing in the Fund and expenses incurred by the Fund based on its
current fiscal year which is a restatement of its most recent completed
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 Fees (As a Percentage of Amount Redeemed,
If Applicable) .......................................... 0.2%(a)
ANNUAL FUND OPERATING EXPENSES (As a Percentage of Average
Net Assets):
Management Fees ........................................... 1.50%
12b-1 Fees ................................................ 0.32%(b)(d)
Service Fees .............................................. 0.08%
Interest Expense .......................................... 0.01%
Other Expenses ............................................ 0.02%(c)
----
Total Fund Operating Expenses ............................. 1.93%
(a) 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.
(b) Long-term shareholders may pay more than the economic equivalent of
the maximum permitted front-end sales charges.
(c) 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.
(d) Management has agreed to limit expenditures under the 12b-1 plan to
.40% of the Fund's net assets for its 1997 fiscal year.
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
------ ------- ------- --------
$22 $63 $106 $229
Your $1,000 investment would incur the following expenses, assuming
5% annual return but no redemption:
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
$20 $61 $104 $226
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 current fiscal year which is a
restatement of its 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.
<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,
-----------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Year $5.05 $3.76 $3.45 $2.95 $2.65 $1.53 $1.63 $1.11 $0.70 $1.13
- ---------------------------------------------------------------------------------------------------------------------------------
Income From Investment
Operations:
Net Investment
Income (Loss) (0.030) (0.060) (0.06) (0.049) (0.05) (0.05) (0.04) (0.03) - 0.01
Net Realized and
Unrealized Gain
(Loss) on Investments 1.083 1.445 0.37 0.584 0.35 1.25 (0.06) 0.55 0.41 (0.43)
---------- ---------- ---------- -------- -------- -------- ------- ------- ------ ------
Total From Investment
Operations 1.053 1.385 0.310 0.535 0.30 1.20 (0.10) 0.52 0.41 (0.42)
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
From Net Investment
Income - - - - - - - - - 0.01
From Net Realized Gain 0.263 0.095 - 0.035 - 0.08 - - - -
---------- ---------- ---------- -------- -------- -------- ------- ------- ------ ------
Total Distributions 0.263 0.095 0.00 0.035 0.00 0.08 0.00 0.00 0.00 0.01
- ---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Year $5.84 $5.05 $3.76 $3.45 $2.95 $2.65 $1.53 $1.63 $1.11 $0.70
- ---------------------------------------------------------------------------------------------------------------------------------
Total Return 20.91 % 36.84 % 8.99 % 18.18 % 11.32 % 79.18 % (6.14)% 46.85 % 58.57 % (37.16)%
- ---------------------------------------------------------------------------------------------------------------------------------
Ratios and
Supplemental Data:
Net Assets, End of
Year (In Thousands) $5,341,311 $3,163,310 $1,592,551 $966,632 $314,371 $141,134 $39,711 $36,370 $5,731 $1,888
Ratio of Expenses
(After Expense
Reimbursement)
to Average Net
Assets (%) 1.93 % 2.17 % 2.29 % 2.53 % 2.94 % 3.64 % 3.45 % 2.36 % 2.00 % 2.00 %
Ratio of Interest
Expense to Average
Net Assets (%) 0.01 % 0.01 % 0.02 % 0.03 % 0.08 % 0.52 % - - - -
---------- ---------- ---------- -------- -------- -------- ------- ------- ------ ------
Ratio of Expenses
(After Expense
Reimbursement Less
Interest Expense)
to Average Net
Assets (%) 1.92 % 2.16 % 2.27 % 2.50 % 2.86 % 3.12 % 3.45 % 2.36 % 2.00 % 2.00 %
Ratio of Net
Investment Income
(Loss) to Average
Net Assets (%) (0.82)% (1.24)% (1.58)% (1.34)% (1.74)% (1.96)% (2.56)% (1.41)% (0.23)% 0.92 %
Portfolio Turnover
Rate (%) 72 % 60 % 47 % 55 % 51 % 128 % 195 % 202 % 343 % 228 %
Average Commission Rate+ $0.09 -- -- -- -- -- -- -- -- --
Shares Outstanding
at End of Year
(In Thousands) 914,522 626,600 424,108 280,157 106,469 53,225 25,980 22,268 5,171 2,685
- ---------------------------------------------------------------------------------------------------------------------------------
Borrowings:
Debt Outstanding at
End of Year - - - $49,000,000 $4,015,965 $3,017,622 - - - -
Average 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 Debt Per Share
During the Year - - $0.01 $0.03 $0.04 $0.06 - - - -
+For fiscal years beginning on or after September 1, 1995, the Fund's average commission rate per share for security trades
on which commissions are charged requires disclosure.
This information has been examined and reported on by Sanville & Company, Independent Public Accountants, for the years ended
December 31, 1996, 1995, 1994, 1993, 1992, 1991, 1990 and 1989, by Stavisky, Knittle, Isaacs & Dichek, Independent Public
Accountants, for the years ended December 31, 1988 and 1987.
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 operational until 1985 when present
management assumed control. In February, 1993 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
7
<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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 1994, the Fund had a portfolio turnover
rate of 47%, for 1995 of 60% and for 1996 of 72%.
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 1986.
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 and Semi-Annual Reports of the Fund contain additional
performance information; a copy will be made available upon request and
without charge. They are also available on the Fund's Web site:
www.kaufmann.com.
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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<PAGE>
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
and in accordance with procedures laid down by the Board of Directors.
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, 1996,
before expense reimbursement were $91,150,723; the net expenses after
reimbursement were $85,306,876 or 1.93% of average net assets after
expense reimbursement.
PURCHASE OF FUND SHARES
BY MAIL
ALL PURCHASES MADE BY CHECK SHOULD BE IN U. S. DOLLARS DRAWN ON
A U. S. BANK AND MADE PAYABLE TO THE KAUFMANN FUND, INC. OR IN THE CASE
OF A RETIREMENT ACCOUNT THE CUSTODIAN OR TRUSTEE. THIRD PARTY CHECKS
(CHECKS MADE PAYABLE TO THE INVESTOR AND ENDORSED BY THE INVESTOR TO THE
FUND) WILL NOT BE ACCEPTED FOR AN INITIAL PURCHASE OF FUND SHARES. ALSO
THIRD PARTY CHECKS FOR SUBSEQUENT INVESTMENTS WILL NOT BE ACCEPTED ABSENT
SPECIAL PERMISSION.
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 SHOULD NOT BE SENT TO THE FUND.
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, accounts opened under the Automatic
Investment Plan and Payroll Deduction Plans) or such lower amount as
may, time to time, be agreed upon. 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 third 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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<PAGE>
(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. Jack White
and Co., Inc. acts as broker-dealer for the Fund in the state of Texas.
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 ____.
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 will be immediately charged for any
loss incurred.
While redemption proceeds will normally be paid within 3 days after
redemption, if an investor who has purchased Fund shares, either by the
issuance of a check or through an automatic investment plan, submits a
request for redemption, the Fund's agent will delay payment of the
redemption proceeds until it is satisfied that the purchaser's check has
cleared, which may take up to 15 days from the date of share purchase.
In the event that a purchaser's check is returned unpaid for any
reason, including from an automatic investment plan, a $20 dishonored
check charge will be made against the purchaser's account.
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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<PAGE>
The Fund's portfolio securities are valued primarily based on market
quotations, or, if quotations are not available or are deemed not to be
representative, then by methods that the Valuation Committee using
criteria established by the Board of Directors believes accurately
reflects fair value. 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 or dollar
value 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. Eligible guarantors include
banks, securities brokers and 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, the Transfer
Agent will delay payment of the redemption proceeds until it is
satisfied that the investor's check has cleared, which may take up to 15
days from the date of share purchase. 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.
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<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 two 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.
ACH redemption requests may be made by the Shareholder by calling
Boston Financial Data Services, Inc. at (800) 261-0555. Shareholders
may close their accounts by telephone.
PAYROLL DEDUCTION PLAN
Regular investments in the Kaufmann Fund can be done through a Payroll
Deduction Plan with a minimum initial investment of $500. To establish
such a Plan, please complete the appropriate section of the account
application found at the back of this prospectus. These purchases need
to be initiated by your employer. Your employer will deduct from your
paycheck the amount you wish to invest (minimum $50 monthly) and forward
it to the Kaufmann Fund. Shares will be purchased at the price next
determined after receipt of funds by the Transfer Agent. This plan can be
terminated at any time by instructing your employer to discontinue the
payments. For more information or application forms, please contact the
Transfer Agent at (800) 261-0555.
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") or 403(b) Plan to be funded with shares of
the Fund. State Street Bank and Trust Company acts as custodian for any
IRAs and 403(b) Plans 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 1996
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. We attribute the outstanding
long-term performance of the Fund to the quality of the companies
in the portfolio.
The acquisition in 1996 of a number of our top twenty holdings had
a positive impact on the Fund's 1996 performance. While the Fund makes
investments based on the profitability, growth aspects and management
of each company, the so called "bottoms-up" approach, historically
approximately 20%-30% of the Fund's portfolio is invested in technology,
20%-30% in health care and 15%-20% in the retailing industries. The balance
of the Fund's portfolio is highly diversified in terms of broad industry
categories.
During the past year, we made a number of IPO investments in young
companies in prosaic industries. These companies acquire and assimilate
other firms in their fields, using state of the art information systems
and management techniques to create greater sales opportunities and
higher levels of profitability.
While the Fund does not engage in market timing, the cash position
at year end was 14% which is at the high end of its historic range. This
was in recognition of the high large company valuations and of the fact
that the stock market has not had a 10% correction since late 1990. This
cash position should enable us to take advantage of buying opportunities.
The trend toward free-market economies and free trade on a world-wide
basis, combined with the impact of technology (particularly semiconductors
and their effect on communication and information) leads us to believe
that economic growth can continue with low inflation and moderate interest
rates. We believe this favorable environment for equities will result
in a continuation of the secular bull market for the balance of the decade.
This economic environment will also continue to create many new investment
opportunities for the Fund.
27
<PAGE>
DESCRIPTION OF GRAPHIC MATERIAL
In accordance with the provisions of Regulation 304, here follows a
fair and accurate narrative description of the graphic material. The
graphic material is a comparison of the S&P 500 Index, the NASDAQ Index
and the Kaufmann Fund.
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 700 and a year scale for the years ending
12/31/87 (equals zero) through 12/31/96. The performance of each of the
S&P Index, the NASDAQ Index and the Fund commences at 100 on 12/31/86.
As of 12/31/96 the S&P Index is shown at 414, the NASDAQ Index at 370
and the Fund at 584.
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NASDAQ 100 95 109 130 107 168 194 223 216 302 370
S&P 100 105 123 161 156 204 220 242 245 337 414
KAUFMANN 100 83 100 146 137 246 274 324 353 483 584
</TABLE>
<TABLE>
<CAPTION>
ANNUAL TOTAL RETURN
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KAUFMANN 20.91 36.89 8.99 18.18 11.32 79.18 -6.14 46.85 58.57 -37.16
S&P 22.95 37.53 1.31 10.06 7.61 30.40 -3.11 31.63 16.56 5.25
NASDAQ 22.71 39.92 -3.20 14.75 15.45 56.84 -17.80 19.26 15.41 -5.26
</TABLE>
<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 May 1, 1997,
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: May 1, 1997.
<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: 61.
*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: 53.
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: 74.
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: 68.
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: 60.
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: 63.
Remuneration of Directors and Officers
- --------------------------------------
The Directors, other than Messrs. Utsch and Auriana,
presently receive an annual retainer of $18,000 plus $2,400 for each
Board of Directors' Meeting or Committee Meeting attended, plus
expenses. Directors fees for the year ended December 31, 1996 totalled
$175,094.
*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
The Fund's records show that the only owner of more than 5%
of the Fund's outstanding shares at the close of business on December 31,
1996 was Charles Schwab & Co., Inc. The shares are understood to be
held by it for undisclosed investors who are the beneficial owners.
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
September 24, 1996 called for the purpose of voting on such Agreement.
It will continue in effect until October 30, 1997 and thereafter for
successive annual periods provided that such continuance is specifically
approved at least annually by (a) the Fund's Board of Directors,
provided, that 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, or (b) the vote of a majority of the Fund's outstanding voting
shares. 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 $18,927,894, $35,051,628 and $66,206,955
in management fees for 1994, 1995, and 1996 respectively.
Formerly, Edgemont was required to agree, as a condition of
qualifying its shares for sale in certain jurisdictions, that if the
Fund's annual expenses exceeded a certain percentage of average net
assets, Edgemont was required to reduce its annual investment advisory
fee to the percentage limitations imposed on the Fund by the laws of the
interested jurisdiction. California limited expenses to 2-1/2% of the
first $30 million of average net assets, 2% of the next $20 million and
1-1/2% of all in excess of $100 million. Fees reimbursed to the Fund
for the year 1994 were $1,900,108, and for 1995 were $3,500,370.
While not required to do so for 1996, Edgemont, nevertheless,
voluntarily limited Fund expenses to the California standard and rebated
$5,243,247 to the Fund for 1996. It intends to also limit its expenses
in accordance with the California standard for 1997.
8
<PAGE>
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 1994 and 1995, the Fund paid $3,370,645. and
$4,530,898., respectively, in brokerage commissions. Of these amounts
$173,360. in 1994 and $51,020. in 1995 were paid to Bowling Green
Securities. During 1996, total brokerage commissions in the amount of
$8,946,721. were paid on total transactions of
10
<PAGE>
$2,300,792,305. Of the total amount of commissions paid, .74%
was paid to Bowling Green Securities on .61% of the total
portfolio transactions effected. Of the $66,520. in commissions paid to
Bowling Green Securities, $17,333. 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 18, 1997, 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 in person 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 1996, the following sums were spent for the
following purposes.
Advertising: Print, Radio & TV $6,286,116.00
Printing and Stationery 2,840,071.00
Postage and Shipping 2,379,918.00
Compensation 350,724.00
Services Rendered 867,503.00
Distribution Fees 546,341.00
List Rentals 636,161.00
Other:
Telephone 107,785.00
Professional Fees and Wages 34,951.00
Miscellaneous 23,306.00
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. Contact the Transfer Agent at
(800) 637-1700 for details on eligibility and other information.
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
- --------------------------
The Fund has model Section 401(k) plans, Section 403(b)(7)
plans and Money Purchase and Profit Sharing Plans available. 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. 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 financial statements of the Fund as at 12/31/96
appear in the 1996 Annual Report of the Fund and they are incorporated
by reference.
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>
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,
1996 appear in the Fund's Prospectus or in the Statement of Additional
Information.
In Prospectus
-------------
Per Share Income and Capital Changes -
Ten Years - December 31, 1987-1996
In Statement of Additional Information
--------------------------------------
The Registrant's Annual Report for the calendar year
ending 12/31/96 is incorporated by reference.
Pursuant to the requirements of Rule 303(b) of
Regulation ST, the following financial statements
appearing in the Registrant's 12/31/96 Annual Report,
filed in electronic format, are included as exhibits
to this filing.
(1) Statement of Assets and Liabilities - December 31, 1996
(2) Statement of Operations - December 31, 1996
(3) Statement of Changes in Net Assets - December 31, 1995
and December 31, 1996
(4) Notes to Financial Statements - December 31, 1996
(5) Opinion of Sanville and Company dated January 31, 1997
(6) Schedule of Investments - December 31, 1996
(7) Schedule of Securities Sold Short - December 31, 1996
<PAGE>
(b) Exhibits
--------
Exhibit No.
-----------
(1) Copies of the Certificate of
Incorporation as now in effect;
Certificate of Incorporation,
as amended (i)***
(2) Copies of the existing By-Laws
or instruments corresponding
thereto;
Copy of By-Laws (ii)***
(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.
Executed document not filed pursuant
to Rule 403(d)(3).
(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.
Executed document not filed pursuant
to Rule 403(d)(3).
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 21, 1997 as
part of Rule 24f-2 Notice for
securities transactions in 1996,
incorporated by reference.
(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 Item 24(a)
Company - Certified Public
Accountants included in Annual
Report for year ending 12/31/96
which is incorporated by reference
in the Fund's 1996 Annual Report.
(b) Consent of Sanville & Ex-23
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).
Computation of a $1,000 Ex-99.16
Hypothetical Investment in
the Fund, as set forth in
Prospectus Fee Table
(17) A Financial Data Schedule meeting Ex-27
the requirements of Rule 483 under
the Securities Act of 1933.
(18) Copies of any plan entered into N/A
pursuant to Rule 18f-3 under the
1940 Act.
5
<PAGE>
* 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.
*** An Exhibit to Post-Effective Amendement No. 45 filed electronically
on March 11, 1996.
All Exhibits except those filed with this Post-Effective Amendment are
hereby incorporated by reference.
<PAGE>
Ex-99.16
The Kaufmann Fund, Inc.
Expense Calculations For Fee Table Examples
Assumptions: $1,000 investment, 5% no-load annual return, 1.93% expenses
5% - 1.93% = 3.07%
Cumula- Redemp- Redemp- Cumula-
tive tion tion tive
Year Amounts Average Expense % Expenses Expenses Fee % Fee Expenses
- -------------------------------------------------------------------------------
1 1,000 1,016 1.93% 20 20 0.2% 2 22
1,031
2 1,031 1,047 1.93% 20
1,063
3 1,063 1,080 1.93% 21 61 0.2% 2 63
1,096
4 1,096 1,113 1.93% 21
1,130
5 1,130 1,148 1.93% 22 104 0.2% 2 106
1,165
6 1,165 1,183 1.93% 23
1,201
7 1,201 1,220 1.93% 24
1,238
8 1,238 1,257 1.93% 24
1,276
9 1,276 1,296 1.93% 25
1,315
10 1,315 1,335 1.93% 26 226 0.2% 3 229
1,355
<PAGE>
Ex-23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report, dated January 31, 1997, on
the annual financial statements and financial highlights of The
Kaufmann Fund, Inc., which is included in Part A and to the incorporation
by reference of the annual financial statements contained in the Fund's
Annual Report for the period ending December 31, 1996 in Part B in Post
Effective Amendment No. 47 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 /s/ SANVILLE & COMPANY
March 3, 1997 Certified Public Accountants
<PAGE>
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, 1996 - 284,333
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>
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 the
Registrant 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 28 day of April, 1997.
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 April 28, 1997
______________________ Director, _________________
HANS P. UTSCH President and
Treasurer
/s/ Lawrence Auriana April 28, 1997
______________________ Chairman of Board, _________________
LAWRENCE AURIANA Director,
Vice President
and Secretary
/s/ Leon Lebensbaum April 28, 1997
______________________ Director _________________
LEON LEBENSBAUM
/s/ Gerard M. Grosof April 28, 1997
______________________ Director _________________
GERARD M. GROSOF
/s/ Pauline Gold April 28, 1997
______________________ Director _________________
PAULINE GOLD
/s/ Roger E. Clark April 28, 1997
______________________ Director _________________
ROGER E. CLARK
Post Effective Amendment No. 47 to the Registration Statement on
Form N-1A of the Kaufmann Fund, Inc. does not contain disclosure
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.
<TABLE> <S> <C>
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<NAME> THE KAUFMANN FUND, INC.
<MULTIPLIER> 1000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 3,731,076
<INVESTMENTS-AT-VALUE> 5,251,671
<RECEIVABLES> 277,100
<ASSETS-OTHER> 435,332
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 5,964,103
<PAYABLE-FOR-SECURITIES> 17,322
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<OTHER-ITEMS-LIABILITIES> 605,470
<TOTAL-LIABILITIES> 622,792
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<SHARES-COMMON-PRIOR> 626,600
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<NET-INVESTMENT-INCOME> (35,802)
<REALIZED-GAINS-CURRENT> 266,881
<APPREC-INCREASE-CURRENT> 515,724
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 223,874
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<NUMBER-OF-SHARES-SOLD> 385,291
<NUMBER-OF-SHARES-REDEEMED> 134,739
<SHARES-REINVESTED> 37,370
<NET-CHANGE-IN-ASSETS> 2,178,001
<ACCUMULATED-NII-PRIOR> 0
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<GROSS-ADVISORY-FEES> 66,207
<INTEREST-EXPENSE> 339
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<AVERAGE-NET-ASSETS> 4,413,614
<PER-SHARE-NAV-BEGIN> 5.05
<PER-SHARE-NII> (0.03)
<PER-SHARE-GAIN-APPREC> 1.083
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