Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Tel: 212-455-2000
Fax: 212-455-2502
February 26, 1999
Re The Kaufmann Fund, Inc. (Registration Statement File Nos. 2-28049
and 811-1586)
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attn: Filing Desk
Dear Sir or Madam:
On behalf of The Kaufmann Fund, Inc. (the "Company"), and pursuant
to Rule 485(a) of the Securities Act of 1933, as amended (the "Securities
Act") and the Investment Company Act of 1940, as amended (the "Investment
Company Act"), we hereby submit for filing by direct electronic
transmission Post-Effective Amendment No. 49 under the Securities Act and
Amendment No. 48 under the Investment Company Act to the Company's
Registration Statement on Form N-1A (the "Post-Effective Amendment").
The purpose of the Post-Effective Amendment is to file a new
prospectus and statement of additional information under revised Form
N-1A.
Please direct any comments concerning the filing to Nick Patnaik at
212-455-3193 of this firm.
Very truly yours,
/s/ Simpson Thacher & Bartlett
SIMPSON THACHER & BARTLETT
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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON 2/26/99
FILE NOS: 2-28049
811-1586
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM N-1A
---------
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 / X /
Pre-Effective Amendment No. _______ / /
Post-Effective Amendment No. 49 / X /
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY / X /
ACT OF 1940
Amendment No. 48
(Check appropriate box or boxes.)
THE KAUFMANN FUND, INC.
-----------------------
(Exact name of Registrant as Specified in Charter)
140 E. 45TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10017
-------------------------
(Address of Principal Executive Office)
Registrant's Telephone Number, including Area Code:
212-922-0123
------------
MARTIN V. MILLER, ESQUIRE, 140 E. 45TH STREET, 43RD FLOOR
NEW YORK, NEW YORK 10017 - 212-922-0123
-------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable
following effective date.
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It is proposed that this filing will become effective (check appropriate
box):
/ / immediately upon filing pursuant to paragraph (b)
/ / on (DATE) pursuant to paragraph (b)
/ / 60 days after filing pursuant to paragraph (a)(1)
/ X / on April 30, 1999 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, 1997
was filed on March 26, 1998.
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<PAGE>
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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 Data
Information and Ratios, Financial Highlights
4. General Description of The Fund, Investment Objective and
Registrant Policies, The Registrant 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
Fund Performance Performance
6. Capital Stock and Other Capital Stock
Securities
7. Purchase of Securities Purchase of Fund Shares, Account
Being Offered 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
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FORM N-1A PART B
ITEM # LOCATION IN STATEMENT OF
------ ADDITIONAL INFORMATION
-------------------------
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and See Item "The Fund" in Prospectus
History
13. Investment Objectives and Investment Objective and Policies,
Policies Investment Restrictions
14. Management of the Fund Management of the Fund
15. Control Persons and Principal Holders of Securities
Principal Holders of
Securities
16. Investment Advisory and Investment Advisory Services,
Other Services Custodian, Auditor. See item
"Transfer Agent and Custodian" in
Prospectus
17. Brokerage Allocation and Brokerage Allocation
Other Practices
18. Capital Stock and Other See item "Capital Stock" in
Securities Prospectus
19. Purchase, Redemption and Purchase and Redemption of Shares,
Pricing of Securities Being Special Investor Services,
Offered Distribution Plan. See "Purchases
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
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<PAGE>
PART B (Continued)
- -------------------
ITEM # LOCATION IN STATEMENT
------ OF ADDITIONAL INFORMATION
-------------------------
22. Calculations of Performance Additional Performance
Data Information for the Fund
23. Financial Statements Financial Statements
PART C
------
ITEM # LOCATION IN PART C
------ -------------------
24. Financial Statements and Financial Statements and
Exhibits Exhibits
25. Persons Controlled by or Under Persons Controlled by or Under
Common Control with Registrant Common Control with
Registrant
26. Number of Holders of Securities Number of Holders of
Securities
27. Indemnification Indemnification
28. Business and Other Connections Business and Other Connections
of Investment Advisor
29. Principal Underwriter Principal Underwriter
30. Location of Accounts and Location of Accounts and
Records Records
31. Management Services Management Services
32. Undertakings Undertakings
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<PAGE>
Cover
[Logo]
Prospectus & Application
May 1, 1999
The Kaufmann Fund, Inc.
140 East 45th Street, 43rd Floor
New York, New York 10017
Investing in growth companies for the long term
The Fund seeks capital appreciation by investing principally in common
stocks.
For Assistance in Completing an Application or
Questions Concerning Shareholder Accounts
(800) 261-0555
As with all mutual funds, the Securities and Exchange Commission does not
guarantee that the information contained in this prospectus is accurate or
complete nor has it approved or disapproved any securities offered in this
prospectus. Anyone who tells you otherwise is committing a crime.
<PAGE>
<PAGE>
Table of Contents
Why You Should Read This Prospectus
Reading the prospectus will help you to decide whether The Kaufmann Fund,
Inc. is the right investment for you. It allows you to compare the Fund's
objective, principal strategies, principal risks and performance with other
mutual funds. Please keep it for future reference.
Page
Information About the Fund . . . . . . . . . . . . . . . . . . . . . . . 3
Objective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Hands On Approach . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Example Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Additional Investment Strategies . . . . . . . . . . . . . . . . . . . . 7
Account Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Purchasing Shares . . . . . . . . . . . . . . . . . . . . . . . . . 9
Selling Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Special Investor Services . . . . . . . . . . . . . . . . . . . . . 13
Dividends and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dividends and Distributions . . . . . . . . . . . . . . . . . . . . 14
Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . 15
Managing the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Portfolio Management . . . . . . . . . . . . . . . . . . . . . . . 16
Portfolio Turnover . . . . . . . . . . . . . . . . . . . . . . . . 16
Year 2000 Readiness . . . . . . . . . . . . . . . . . . . . . . . . 16
Euro Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Distribution and Service Plans . . . . . . . . . . . . . . . . . . 17
Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . 18
The Fund is not a complete investment program, but may serve to diversify
other types of investments in your portfolio.
-2-
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INFORMATION ABOUT THE FUND
Objective
The Fund's investment objective is capital appreciation. The Fund invests
principally in common stocks, convertible preferred stocks and bonds,
including convertible bonds.
Strategies
To achieve its objective, the Fund invests primarily in the stocks of small
and medium-sized companies that are traded on national security exchanges,
NASDAQ and in the over-the-counter market. Up to 25% of the Fund's net assets
may be invested in foreign securities. When deciding which securities to buy
the Fund considers:
- - the growth prospects of existing products and new product development
- - the economic outlook of the industry
- - the price of the security and its estimated fundamental value
- - relevant market, economic and political environments.
The Fund invests in individual companies for the long term. It buys the
stocks of companies that it believes:
- - are profitable and leaders in their industry
- - have distinctive products and services which address substantial markets
- - can grow annual earnings by at least 20% for the next three to five
years
- - have superior proven management and solid balance sheets.
[CALLOUT]
Hands On Approach
Edgemont Asset Management Corporation, the Fund's investment advisor, uses a
bottom up approach to portfolio management. There is an emphasis on
individual stock selection rather than trying to time the highs and lows of
the market or concentrating in certain industries or sectors. This hands on
approach means that in addition to sophisticated computer analysis, Edgemont
conducts in-depth meetings with management, industry analysts and
consultants. Through this interaction with companies Edgemont seeks to
-3-
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develop a thorough knowledge of the dynamics of the businesses the Fund
invests in.
Typically, the Fund sells an individual security when the company fails to
meet expectations, there is a deterioration of underlying fundamentals or the
intermediate and long-term prospects are poor.
Risks
The Fund cannot eliminate risk or assure achievement of its objective and you
may lose money on your investment in the Fund.
The Fund is subject to "management" and "market" risks. Management risk means
that the Fund's strategy may not produce the expected results, causing
losses. Market risk is when the price of a security moves down in response to
general market and economic conditions or from the activities of an
individual company.
Since the Fund invests mostly in small companies its share price may
fluctuate more than the share price of funds primarily invested in large
companies. Small companies may pose greater risk due to narrow product lines,
limited financial resources, less depth in management or a limited trading
market for their stocks.
In addition, there are risks associated with investing in foreign countries.
Since foreign securities are usually denominated in foreign currencies, the
value of the Fund's portfolio could be affected by currency exchange rates
and exchange control regulations. Other risks include:
- - seizure, expropriation or nationalization of a company's assets
- - less publicly available information and differing regulations and
standards
- - the impact of political, social or economic instability, or diplomatic
events
- - securities are less liquid and harder to value than those of a U.S.
issuer.
As a result of these risks, the Fund may be more volatile than a fund
investing in U.S. companies. These risks may be greater if the Fund invests
in developing countries.
Performance
The information below shows the Fund's performance for the ten-year period
through December 31, 1998. These returns include reinvestment of all
dividends and capital gain distributions, and reflect Fund expenses. As with
all mutual funds, past performance does not guarantee future results.
-4-
<PAGE>
<PAGE>
Year-by-year returns show how the Fund's performance has varied by
illustrating its volatility for each full calendar year for the past ten
years. These figures do not reflect the redemption fee. If the fee was
included performance would be lower.
<TABLE>
<CAPTION>
Year-By-Year Total Return As Of December 31,
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
90%
80% 81.0%
70%
60%
50%
40% 46.9%
30% 36.9%
20% 20.9%
10% 11.3% 18.2% 12.6%
0% -6.1% 9.0% 0.7%
- -10%
Best Quarter: 28.1% (1st quarter 1991)
Wort quarter: -18.7% (3rd quarter 1998)
</TABLE>
Average annual total return measures Fund performance over time. The Fund's
average annual return is compared with the Russell 2000 Index. While the Fund
does not seek to match the returns of the Russell 2000, this Index is a good
indicator of small company stock performance. You may not invest in the
Russell 2000 and, unlike the Fund, it does not incur fees or charges.
Performance figures reflect the redemption fee.
Average Annual Returns as of December 31, 1998
1 Year 5 Years 10 Years
-------------- ---------------- ---------------
The Kaufmann Fund 0.5% 15.2% 20.7%
Russell 2000 -2.2% 11.9% 12.9%
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Expenses
As a Fund shareholder, Shareholder Fees
you do not pay any sales (fees paid directly from your
charges or exchange fees. investment)
Annual expenses, other
than management fees, Maximum redemption fee (1) 0.20%
can vary from year-to-year. (as % of redemption proceeds)
These fees are for the
fiscal year ended Annual Fund Operating Expenses
December 31, 1998. (expenses that are deducted directly
from Fund Assets)
Management fee 1.50%
Distribution and service (12b-1) fees 0.43%
Other expenses 0.00%
Total Annual Fund Operating Expenses %
Fee Waiver (2) %
Net Operating Expenses 1.96%
(1) The Fund imposes a 0.20% fee on the redemption of any shares purchased
after February 1, 1985.
(2) Under a written agreement, Edgemont reimburses expenses when certain
annual operating expenses of the Fund exceed $650,000. This agreement
may be terminated or amended at any time by a vote of the Fund's
Directors.
[CALLOUT]
Understanding Costs
Costs are an important consideration in choosing a mutual fund. That's
because you pay the costs of operating the Fund. These costs can erode a
substantial portion of the capital appreciation the Fund achieves. Even
seemingly small differences in expenses can, over time, have an effect on the
Fund's performance.
Example Costs
The following example allows you to compare the cost of investing in the Fund
to the cost of investing in other mutual funds by showing what your costs may
be over time. It uses the same assumptions that other funds use in their
prospectuses:
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<PAGE>
- - $10,000 initial investment
- - 5% total return for each year
- - Fund operating expenses remain the same for each period
- - redemption at the end of each period.
Your actual costs may be higher or lower, so use this example for comparison
only. The top line reflects the cost without redeeming shares. The second
line assumes redemption at the end of each period. Based on this information
your costs at the end of each period would be:
One Year Three Years Five Years Ten Years
-------- ----------- ---------- ---------
$199 $615 $1,057 $2,285
$220/ $637 $1,080 $2,312
ADDITIONAL INVESTMENT STRATEGIES
In seeking to meet its investment objective, the Fund may invest in other
types of securities and employ certain investment practices These securities
and investment practices offer certain opportunities and carry various risks.
The Fund may use up to 10% of its net assets to purchase and sell put and
call options, and write covered call options to protect its assets. The
successful use of options, which are a type of derivative, depends on
Edgemont's ability to correctly predict changes in the price of securities.
Options may be riskier than other types of investments.
The Fund may make short sales of securities listed on one or more national
exchange or on the NASDAQ. A short sale means selling a security the Fund
does not own to take advantage of an anticipated decline in the stock's
price. Once the Fund sells the security short, it has an obligation to
replace the borrowed security. If it can buy the security back at a lower
price, a profit results. In no event will the Fund engage in short sales
transactions if it would cause the market value of all the Fund's securities
sold short to exceed 25% of its net assets. Short sales may reduce returns or
increase volatility.
Up to 10% of the Fund's net assets may be invested in illiquid securities,
including those with legal or contractual restrictions and those without a
readily available market. The Fund may also invest up to 10% of its total
assets in other registered investment companies.
Up to 5% of the Fund's net assets may be invested in warrants. A warrant is
issued by a company and entitles the holder to buy the company's common stock
at a set price during a stated period of time. The Fund may lose money on a
warrant if the price of the underlying security declines or if the warrant
expires before it is exercised.
The Fund may borrow up to 33 1/3% of its net assets from banks for temporary
or emergency purposes, clearing transactions or for investment purposes.
-7-
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Borrowing for investment purposes is known as leveraging, which increases the
effect of any change in the market value of the Fund's portfolio. Leveraging
may expose the Fund to greater risk and increased costs. Interest paid on any
borrowed securities may have the effect of lowering the Fund's return. In
addition, the Fund may have to sell the securities when it would normally
keep them in order to receive interest payments.
The Fund has a securities lending program. The Fund may loan up to 30% of its
total assets, in the form of its portfolio securities, to unaffiliated
broker-dealers, banks or other recognized institutional borrowers. No loans
are made without equivalent collateral. The Fund lends its portfolio
securities to generate additional income. The primary risk in lending
securities is the default of a borrower. If the borrower defaults there could
be a deficiency in the collateral posted by the borrower. This risk is
minimized by computing the value of the loaned securities each day. If the
value of the security increases, additional collateral is provided by the
borrower.
[CALLOUT]
Investing Defensively
In response to unfavorable market, economic or political conditions, the Fund
may temporarily invest 100% of its assets in cash, U.S. government
securities, certificates of deposit or high grade debt securities for
defensive purposes. For this purpose, high grade means major rating services
like Standard & Poor's Ratings Group or Moody's Investors Service, Inc. have
rated the securities within their two highest quality grades. Although the
Fund would do this to avoid losses, these measures may hurt the Fund's
efforts to achieve its objective.
-8-
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ACCOUNT INFORMATION
Determining Price
The price at which you buy, sell or exchange Fund shares is the share price
or net asset value (NAV).
[CALLOUT]
Calculating NAV
The share price for the Fund is determined by adding the value of the
investments, cash and other assets, deducting liabilities, and then dividing
that value by the total number of shares outstanding.
NAV is calculated at the close of regular trading of the New York Stock
Exchange (normally 4:00 p.m. New York time) each day the Exchange is open.
NAV is not calculated on days the Exchange is closed. For a purchase,
redemption or exchange of Fund shares, your price is the next calculated NAV
after your request is received in good order and accepted by the Fund. To
receive a specific day's price, your request must be received before the
close of the Exchange on that day.
When the Fund calculates share price, it values its securities at market
value. Sometimes market quotes for some securities are not available or are
not representative of market value. Examples would be when events occur that
materially affect the value of a security at a time when the security is not
trading or when the securities are illiquid. In that case, securities may be
valued in good faith at fair value, using consistently applied procedures
adopted by the Directors.
Foreign securities traded on foreign exchanges are valued at the last quoted
sales price available before the Fund's assets are valued. These securities
trade during hours and on days that the Exchange is closed and the Fund's NAV
is not calculated. Although the Fund's NAV may be affected during these
times, you will not be able to purchase or redeem shares on these days.
Purchasing Shares
You pay no sales charge to purchase shares of the Fund. Purchases are made at
NAV. If the Fund or the Fund's transfer agent receives, in proper form, your
check, wire or electronic transfer after 4:00 p.m. Eastern time, your
purchase is effective on the next business day.
Broker-dealers, financial planners, registered investment advisers, banks or
other institutions, may impose investment minimums higher than those imposed
by the Fund. They may also charge for their services. There are no charges if
you purchase your shares directly from the Fund.
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Minimum Minimum
Type of Initial Additional
Account Investment Investment
- --------------------------- -------------------- --------------------
Regular Accounts
By telephone N/A $1,000
By mail $1,500 $100
By Automatic Investment $500 $50 monthly
IRAs
By mail $500 N/A
By Automatic Investment N/A $50 monthly
Payroll Deductions $500 N/A
By Automatic Investment N/A $50 monthly
The Fund has the right to reject any purchase order, or limit or suspend the
offering of its shares. Additionally, the Fund may discontinue the acceptance
of telephone orders without notice and waive minimum purchase requirements at
any time.
[CALLOUT]
Payment for Fund Shares
Purchases must be made by check, Federal Reserve draft, or other negotiable
bank draft, payable in U.S. dollars and drawn on U.S. banks. Third party
checks will not be accepted for initial purchases or without special
permission. A charge is imposed on any returned checks.
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Opening an Account Adding to an Account
By Mail - Complete and sign the - Make check payable to:
application. The Kaufmann Fund, Inc.
- Make your check payable - Include your account number
to: on the check.
The Kaufmann Fund, Inc. - Mail check with the stub from
Mail application and check your shareholder statement to
to: the address on the left.
Boston Financial Data
Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
By Telephone N/A - Make the election on the
application.
- Call (800) 261-0555 to place
investment.
- Additional investments may
not exceed $10,000, or seven
times your current account
balance, whichever is less.
Payment must be received
within three days.
By Wire Complete and sign the - Wire funds to:
application. Mail your State Street Bank & Trust Co.
application to the address ABA: 011000028 for credit to
above. Call (800) 261-0555, BFDS Account #99050874 The
or (617) 328-5000 if Kaufmann Fund, Inc.
overseas, to obtain an [Your name and account
account number. Wire funds number].
using the instructions at - Call (800) 261-0555 to advise
the right. of wire.
By Automatic - Call (800) 261-0555 to set N/A
Investment up a purchase schedule.
Program
Through an - Contact your financial - Contact your financial
Intermediary professional or broker- professional or broker-
dealer. dealer.
-11-
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<PAGE>
Selling Shares
You may sell shares of the Fund on any day it is open for business.
Redemption requests received before 4:00 p.m. Eastern time will be made at
that day's NAV. No redemption request will be processed until your shares
have been paid for in full. If you pay for shares by check, payment may take
up to 15 days to clear from the date of purchase. In times of drastic
economic or market conditions, you may have difficulty selling shares by
telephone. The telephone redemption privilege may be modified or discontinued
without notice to shareholders.
Selling Shares:
By Telephone or * Make the election on the application.
Overseas Cable * Call (800) 261-0555, or (617) 328-5000 from overseas.
* Send a telegram or overseas cable to:
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
By Mail * Send a letter of instruction to Boston Financial Data
Services, Inc at the address above. Include:
- your account number
- the dollar value or number of shares to be redeemed
- signature guarantee if required, along with other
supporting documents
- share certificates, if applicable.
* Sign the request exactly as the shares are registered.
Through an Contact your financial professional or broker-dealer.
Intermediary
Redemption Proceeds
Once your redemption request has been received in "proper form," shares will
be redeemed at the next determined NAV. If your shares were purchased after
February 1,1985, redemption proceeds are subject to a redemption fee of
0.20%.
"Proper form" means that the Fund has received your account application, all
shares are paid for, and all documentation along with any required signature
guarantees and share certificates are included. Payment will be made by check
to the address of record, or by wire transfer if you elected this on your
account application, generally no later than the third business day after the
valuation date.
Signature Guarantees
The Fund uses signature guarantees to protect you and the Fund from possible
fraudulent requests for redeemed shares. Your redemption request must be
accompanied by a signature guarantee if it exceeds $30,000. Signature
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<PAGE>
guarantees may be obtained from most broker-dealers, national or state banks,
credit unions, federal savings and loan associations or other eligible
institutions. Signature guarantees cannot be obtained from a notary public.
If you have a question concerning signature guarantees, please call (800)
261-0555.
[CALLOUT]
Security Considerations
You may give up some level of security in choosing to buy or sell shares by
telephone rather than by mail. The Fund uses procedures designed to give
reasonable assurance that telephone instructions are genuine, including
recording the transactions, testing the identity of the shareholder placing
the order, and sending prompt written confirmation of transactions to the
shareholder of record. If these procedures are followed, the Fund and its
service providers are not liable for acting upon instructions communicated by
telephone that they believe to be genuine.
Redemptions In-kind
The Fund intends to redeem shares in cash, although in order to protect the
interest of remaining shareholders, it retains the right to redeem its shares
in-kind. In-kind payment means portfolio securities are received rather than
cash. If this occurs, transaction costs will be incurred when selling the
securities.
Involuntary Redemption
If your account falls below $500, the Fund may close your account by
redeeming your shares and sending the proceeds minus any applicable
redemption fee. You will receive notice to increase your balance 30 days
before this happens. Your account will not be redeemed if the balance is
below the minimum due to a reduction in the Fund's NAV. Involuntary
redemptions do not apply to IRAs and other retirement accounts.
Special Investor Services
The Fund offers its shareholders special services, which you may elect at the
time you open your account or at a later date. If you want further
information on any of these services please call (800) 261-0555.
The Kaufmann/Reserve Fund Money Market Switch Plan
The Fund and the Reserve Fund offer a switch plan which allows you to redeem
Fund shares to and from the Kaufmann Fund. The minimum amount that may be
switched is $1,000.
In order to participate in the Switch Plan elect the option on the account
application. Call (800) 261-0555 to effect the switch. A transfer from the
Fund to the Reserve Fund will take at least four business days and is subject
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<PAGE>
to the applicable redemption fee of 0.20%. The Fund and the Reserve Fund have
the right to limit the number of switches made. Either the Fund or the
Reserve Fund may terminate the Switch Plan at any time.
For federal income tax purposes, a switch into the Reserve Fund will be
regarded as a sale of Fund shares and the purchase of Reserve Fund shares.
Automatic Investment Plan
Regular investments in the Fund can be made through the Automatic Investment
Plan Elect the option on the account application and attach a voided personal
check. The Automatic Investment Plan may be canceled at any time without
penalty.
Payroll Deduction Plan
Regular investments in the Fund may be made through a Payroll Deduction Plan
by electing the option on the account application. Your employer will deduct
the amount you wish to invest directly from your paycheck and forward it to
the Fund. The Payroll Deduction Plan may be canceled at any time without
penalty by notifying your employer. Please check with your employer for
availability of this service.
Systematic Withdrawal Plans
A Systematic Withdrawal Plan is available if you own more than $5,000 worth
of Fund shares. Under this plan, proceeds from redemption of Fund shares may
be sent to you, a person designated by you or to your bank account.
IRAs and 403(b) Accounts
Individual Retirement Account or 403(b) accounts are available.
Shareholder Confirmations and Statements
A confirmation will be sent each time you buy or sell Fund shares, or
reinvest dividends or capital gain distributions. The confirmation will list
the most recent transaction and the current share balance. Automatic
Investment Plan accounts receive quarterly statements. All accounts receive
an annual statement as well as year-end tax information.
DIVIDENDS AND TAXES
Dividends and Distributions
Distributions will be reinvested automatically in Fund shares, unless elected
to be received in cash. The Fund generally makes two different kinds of
distributions:
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<PAGE>
- - Capital gains from the sale of portfolio securities. The Fund
distributes any net realized capital gains annually, normally in
November.
- - Net investment income from interest or dividends received. The Fund
distributes its investment income annually.
Most of the Fund's distributions are expected to be from capital gains.
[CALLOUT]
Tax Considerations
Unless your investment is in a tax-deferred account you may want to avoid:
- Investing in the Fund near the end of its fiscal year. If the Fund
makes a capital gains distribution you will receive some of your
investment back as a taxable distribution
- Selling shares at a loss for tax purposes and then making an
identical investment within 30 days. This results in a "wash sale"
and you will not be allowed to claim a tax loss.
Tax Consequences
The buying, selling, holding or exchanging of mutual fund shares may result
in a gain or a loss and is a taxable event. The taxation of your
distributions will be the same whether you receive them in cash or reinvest
them in additional shares. Short- and long-term holding periods are based on
how long the Fund has held a security and not on how long you have owned your
shares.
Transaction Tax Status
------------------------- ---------------
Income dividends Ordinary income
Short-term capital gains Ordinary income
Long-term capital gains Capital gains
The Fund may be subject to foreign withholding or other taxes on some of its
foreign investments. This will reduce the yield or total return on those
investments.
Your investment in the Fund could have additional tax consequences. Please
consult your tax advisor on state, local or other applicable tax laws.
-15-
<PAGE>
<PAGE>
MANAGING THE FUND
Edgemont, the Fund's investment advisor, is responsible for the business
affairs of the Fund. Edgemont is located at 140 East 45th Street, New York,
New York 10017. For its services, Edgemont receives an annual fee of 1.50% of
the Fund's average daily net assets. This advisory fee may be higher than the
fee charged by other mutual funds.
[CALLOUT]
Portfolio Management
The day to day investment operations of the Fund are handled by Mr. Hans P.
Utsch, Chairman of the Board and Secretary of Edgemont, and Mr. Lawrence
Auriana, President and Treasurer of Edgemont. Mr. Utsch has been engaged in
the securities business since 1962, while Mr. Auriana has been in the
securities business since 1965. Messrs. Utsch and Auriana co-founded Edgemont
in August, 1984 and have managed the Fund since March, 1985.
Portfolio Turnover
Portfolio changes may be made without regard to the length of time the Fund
has held a security. It is not the intention of the Fund to engage in trading
for short-term profits. However, the Fund's portfolio turnover may vary
significantly from year to year. It has exceeded 100% in the past, and may do
so again. A turnover rate of 100% means the securities owned by the Fund were
replaced once during the year. Higher turnover rates may result in higher
brokerage costs to the Fund and in higher net taxable gains for the investor.
Year 2000 Readiness
Mutual funds, securities markets and businesses around the world could be
adversely affected if computers do not properly process date-related
information with respect to the Year 2000. Edgemont is addressing this issue
and is getting reasonable assurances from the Fund's major service providers
that they are also addressing these issues to preserve the smooth functioning
of the Fund's trading, pricing, custodial and other operations. There is no
guarantee that all problems will be avoided.
These computer problems could also adversely affect the Fund's investments.
Improperly functioning computers may disrupt securities markets or result in
overall economic uncertainty. Individual companies may also be adversely
affected by the cost of fixing their computers, which could be substantial.
-16-
<PAGE>
<PAGE>
Euro Conversion
Certain European countries have adopted the Euro as their common currency.
National currencies of these countries will be sub-currencies of the Euro
until July 1, 2002, at which time they will cease to exist. The introduction
of the Euro presents some possible risks, which could adversely affect the
value of securities held by the Fund, as well as possible adverse tax
consequences. The outcome could have unpredictable effects on trade and
commerce, resulting in increased volatility for all financial markets.
Distribution and Service Plans
The Fund has adopted a 12b-1 plan permitting it to pay an annual fee in
connection with the distribution of its shares of up to 0.75% of the average
daily net assets. Since this fee is paid on an ongoing basis, it may cost
more than other types of sales charges over time.
The Fund has also adopted a service plan. This plan allows the Fund to
reimburse broker-dealers for providing personal services and the maintenance
of shareholder accounts. This annual service fee cannot exceed 0.25% of the
Fund's average daily net assets.
-17-
<PAGE>
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights will help you understand the Fund's financial
performance for the past five years. Certain information reflects financial
results for a single Fund share. Total return shows how much your investment
in the Fund increased or decreased during each period, assuming you
reinvested all dividends and distributions. Sanville & Company, independent
auditors, audited this information. Their report is included in the Fund's
annual report, which is available upon request.
-18-
<PAGE>
<PAGE>
Selected Data For A Share Outstanding Throughout Each Year
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 6.37 $ 5.84 $ 5.05 $ 3.76 $ 3.45
- ----------------------------------------------------------------------------------------------------------------------------------
Income from Investment Operations:
Net Investment Income (Loss) (0.040) (0.060) (0.030) (0.060) (0.06)
Net Realized and Unrealized Gain (Loss) on 0.017 0.795 1.083 1.445 0.37
Investments
---------- ---------- ---------- ---------- ----------
Total From Investment Operations (0.023) 0.735 1.053 1.385 0.310
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions:
From Net Investment Income -- -- -- -- --
From Net Realized Gain 0.667 0.205 0.263 0.095 --
---------- ---------- ---------- ---------- ----------
Total Distributions 0.667 0.205 0.263 0.095 0.00
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 5.68 $ 6.37 $ 5.84 $ 5.05 $ 3.76
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return (a) 0.72% 12.59% 20.91% 36.84% 8.99%
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
Net Assets, End of Year (in thousands) $4,621,018 $6,008,161 $5,341,311 $3,163,310 $1,592,551
Ratio of Expenses (after expense reimbursement) 1.96% 1.89% 1.93% 2.17 2.29%
to Average Net Assets (%)
Ratio of Interest Expense to Average Net Assets (%) 0.01% 0.01% 0.01% 0.01% 0.02%
---------- ---------- ---------- ---------- ----------
Ratio of Expenses (after expense reimbursement 1.95% 1.88% 1.92% 2.16% 2.27%
less interest expense) to Average Net Assets (%)
Ratio of Net Investment Income (Loss) to Average (0.66)% (1.00)% (0.82)% (1.24)% (1.58)%
Net
Assets (%)
Portfolio Turnover Rate (%) 59% 65% 72% 60% 47%
- ----------------------------------------------------------------------------------------------------------------------------------
Borrowings:
Debt Outstanding at End of Year -- -- -- -- --
Average Debt Outstanding During the Year -- -- -- -- $3,776,120
Average Number of Shares Outstanding During the 333,175
Year (in thousands)
Average Debt per Share During the Year -- -- -- -- $ 0.01
____________________
<FN>
(a) The total returns would have been lower had certain expenses not been
reduced during the years shown.
</TABLE>
-19-
<PAGE>
<PAGE>
[BACK COVER]
[LOGO]
The Kaufmann Fund, Inc.
140 East 45th Street, 43rd Floor
New York, New York, 10017
(212) 922-0123
For More Information
Additional information about the Fund's investments is available in the
Fund's semi-annual and annual reports to shareholders. The Fund's annual
report contains a discussion of the market conditions and investment
strategies that affected the Fund's performance over the past year.
You may wish to read the Statement of Additional Information (SAI) for more
information on the Fund and the securities it invests in. The SAI is
incorporated into this prospectus by reference, which means that it is
considered to be part of the prospectus.
You can get free copies of the annual and semi-annual reports and the SAI,
request other information or get answers to your questions about the Fund by
writing the Fund at:
The Kaufmann Fund, Inc.
Boston Financial Data Services, Inc.
2 Heritage Drive
North Quincy, MA 02171
Call:
(800) 261-0555
(617) 328-5000 from overseas
or visit our website www.kaufmann.com
Text-only versions of Fund documents can be viewed online or downloaded from
the SEC's web site at www.sec.gov.
You can also obtain copies by visiting the SEC's Public Reference Room in
Washington DC. For information on the operation of the Public Reference Room,
call (800) SEC-0330. Copies of documents may also be obtained by sending your
request and the appropriate fee to the SEC's Public Reference Section,
Washington, DC 20549-6009.
Investment Company Act File Number:
The Kaufmann Fund, Inc. 811-1586
-20-
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<PAGE>
THE KAUFMANN FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
Dated: May 1, 1999
______________________
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, 1999 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.
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
General Information And History . . . . . . . . . . . . . . . . . . . . . . 3
Investment Objective and Policies . . . . . . . . . . . . . . . . . . . . . 3
Investment Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Management of the Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Principal Holders of Securities . . . . . . . . . . . . . . . . . . . . . . 14
Investment Advisory Services . . . . . . . . . . . . . . . . . . . . . . . 15
Brokerage Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Potential Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Distribution Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Special Investor Services . . . . . . . . . . . . . . . . . . . . . . . . . 20
Purchase and Redemption of Shares . . . . . . . . . . . . . . . . . . . . . 21
Taxes, Dividends and Capital Gains . . . . . . . . . . . . . . . . . . . . 22
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Custodian . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Auditor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Performance Information . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Additional Performance Information for the Fund . . . . . . . . . . . . . . 26
-2-
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<PAGE>
GENERAL INFORMATION AND HISTORY
The Kaufmann Fund, Inc. (the "Fund"), originally incorporated as a
New York corporation on September 11, 1967, became dormant over the years and
did not again become fully operational until 1985 when present management
assumed control. In February 1993, the Fund was reorganized as a Maryland
corporation with the same investment management. The Fund is an open-end,
diversified, management investment company, as defined by the Investment
Company Act of 1940, as amended (the "1940 Act"); whose investment objective
is capital appreciation.
As a diversified company, the Fund meets the following
requirements: (i) as least 75% of the value of its total assets is
represented by cash and cash items (including receivables) and (ii)
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, as 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.
As an investment company, the Fund invests the monies received from
the sale of its shares in a portfolio of securities. 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. This policy of
concentration may not be changed without shareholder approval.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective and certain of its investment
policies are described in 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 the Fund does 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
-3-
<PAGE>
<PAGE>
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 a
redemption fee 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 advisor to be creditworthy. The Fund's investment advisor
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 repurchase agreements and in restricted securities. Repurchase
agreements are considered to be loans by the Fund under the Investment
Company Act of 1940.
Option 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 term.
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.
-4-
<PAGE>
<PAGE>
A call 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. A
security 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 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
-5-
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<PAGE>
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 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 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.
-6-
<PAGE>
<PAGE>
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. 6
of the Fund's Prospectus.
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, amount 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 warrants
to acquire 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 (discussed on page
-7-
<PAGE>
<PAGE>
____hereof) 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 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 be illiquid after purchase and the Fund's
Board of Directors will then determine what, if any, action is required.
Short Sales and Hedging Operations
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 what ever its price may be
-8-
<PAGE>
<PAGE>
at the time the Fund purchases it for delivery to the lender. When a short
sale transaction is closed our by delivery of the securities, any gain or
loss on the transaction is taxable as a 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 the 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. 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, 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.
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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.
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 of 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.
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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.
There is, of course, no assurance that the Fund will obtain any gains from
its short-term investments.
INVESTMENT RISKS
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.
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 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.
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
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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 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 years continuous
operation.
10. Invest in oil, gas or mineral leases.
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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
Mr. Utsch 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 portfolio. Age: 62.
*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: 54.
Leon Lebensbaum; Director
3601 Hempstead Turnpike, Levittown, New York 11756
Mr. Lebensbaum, an attorney and certified public accountant, has
been in private practice since 1970. He is currently a general partner in
the accounting firm of Lebensbaum and Russo. Prior thereto he was a Special
Agent in the Intelligence Division of the Internal Revenue Service. Age: 75.
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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: 69.
Pauline Gold, Esquire; Director
120 Stuyvesant Place, Staten Island, New York 10301
Mrs. Gold is an attorney and has been engaged in the private
practice since 1964. Age: 61.
Roger E. Clark; Director
1 Hatfield Mews, 330 Elm Street, 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: 64.
Remuneration of Directors and Officers
The Directors, other than Messrs. Utsch and Auriana, presently
receive an annual retainer of $25,000 plus $5,000 for each Board of
Directors' Meeting or $3,000 for each Committee Meeting attended, plus
expenses. Director fees for the year ended December 31, 1998 totaled
__________.
*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, 1998 was
Charles Schwab & Co., Inc and National Financial Co. It is understood that
the shares are held by them for undisclosed investors who are the beneficial
owners.
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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.
The Investment Advisory Agreement was approved for an additional
one-year term by a majority of the Fund's Board of Directors including a
majority of those directors who are not interested persons (as that term is
defined in the Investment Company Act of 1940) at a meeting held on October
15, 1997 called for the purpose of voting on such Agreement. It will
continue in effect until October 30, 1999 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.
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. The advisor performs such duties in
accordance with any directions it may receive form the Fund's Board of
Directors.
Edgemont furnishes the Fund, at no cost, with the services of those
of Edgemont 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
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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 $66,206,955 and $85,089,829 and $___________in
management fees, 1996, 1997 and 1998, 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 $70 million and 1 1/2% of all in excess of $100
million. Fees reimbursed to the Fund for the year 1995 were $3,500,370.
While not required to do so, Edgemont, nevertheless, voluntarily
limited Fund expenses to the California standard and rebated $5,243,247 to
the Fund for 1996, $6,589,322 for 1997 and for 1998.. It may limit its
expenses in the same way for 1999. For example, the Fund's total expenses
for the year ending December 13, 1997, before expense reimbursement were
$113,805,469; the net expenses after reimbursement were $107,216,137 or 1.89%
of average net assets after expense reimbursement.
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 that 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
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brokerage and research services provide 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
trends, 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.
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.
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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 1996 and 1997, the Fund paid $8,946,721 and $10,106,929,
respectively, in brokerage commissions. Of these amounts $66,520 in 1996
were paid to Bowling Green Securities. During 1998, total brokerage
commissions in the amount of __________ were paid on total transactions of
_________. Of the total amount of commissions paid, .______ was paid to
Bowling Green Securities on ____ of the total portfolio transactions
effected. Of the ______ in commissions paid to Bowling Green Securities,
______ 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) a 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.
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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. Management of the Fund
has agreed to limit expenditure under the Rule 12b-1 plan to .40% of the
Fund's net assets for its 1998 fiscal year.
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, 1999, 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 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 1998, the following sums were spent for the following purposes.
Advertising - Print Media
Advertising - Broadcast Media
Advertising -Internet
Printing and Stationary
Postage
Services Rendered
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List Rentals
Broker dealer fees
Employee Compensation and benefits
Telephone
Professional Fees
Other
Travel
Subscriptions
SPECIAL INVESTOR SERVICES
The Kaufmann/Reserve Fund Money Market Switch Plan
In the case of IRA accounts, the custodianship will be
automatically transferred to the trustee, RMCI (Reserve Management Corp.,
Inc.) if you choose to exchange into the Reserve. Additional forms will be
required by RMCI and will be mailed by the Reserve at the time of the
exchange. Subsequently, the trustee on your account will automatically be
switched from RMCI to the Fund's custodian, State Street Bank and Trust, if
you choose to reinvest in the Kaufmann Fund. There will be a limit of two
exchanges per year.
Automatic Investment Plan
A shareholder may make arrangements for an Automatic Investing
Plan. There is a one-time set-up charge of $5. The Automatic Investment Plan
may be changed or cancelled at any time upon receipt by the Fund's Transfer
Agent of written instructions or an amended application from the shareholder
with signatures 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.
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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) 261-0555
for details on eligibility and other information.
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) 261-0555 for details on eligibility and other information.
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 in the Fund's
Prospectus.
A description of the procedure for the determination of the net
asset value of the Fund's shares is contained in the Fund's Prospectus.
In the case of Redemptions 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
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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.
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.
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.
The Fund reserves the right to change or discontinue, without prior
notice, any of the procedures available for redemption requests.
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 with the result that taxable income of the Fund will be reduced by
the amount of distributions to shareholders. 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 gains 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.
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.
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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.
With respect to withholding, 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 to 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.
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 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 Director will not be able to elect anyone to the Board of
Directors.
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<PAGE>
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 of December 31, 1997
appear in the 1997 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 represent approximately 80% of the market
capitalization of the United States equity market. In comparison, the NASDAQ
National Market System is comprised of all 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
-24-
<PAGE>
<PAGE>
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 weight.
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,
Barron'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 invest; (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 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
-25-
<PAGE>
<PAGE>
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.
Total Returns for the one, five and ten year periods ending
December 31, 1998 were ______, ________ (Annualized ____) and _______
(Annualized ______), respectively.
-26-
<PAGE>
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit No.
(1) Certificate of Incorporation, as amended<F3>
(2) Copy of By-Laws<F3>
(3) None
(4) Copy of Investment Management Agreement between The Kaufmann
Fund, Inc. and Edgemont Asset Management Corporation, as
amended.<F3>
(5) Agreement Pursuant to Plan of Distribution between The
Kaufmann Fund, Inc. and Edgemont Asset Management
Corporation<F4>
Amendment No. 1 dated 7/1/93<F4>
(6) None
(7) Custodian Agreement between and The Kaufmann Fund, Inc. and
State Street Bank and Trust Company.<F4>
Special Custody Account Agreement between The Kaufmann Fund,
Inc., State Street Bank and Trust Company, and Morgan Stanley
Prime Brokerage<F4>
(8) Transfer Agency and and Service Agreement between The Kaufmann
Fund, Inc. and Boston Financial Data Services, Inc.<F4>
Copy of Authorization Agreement for payment of Service
Fees<F4>
(9) Opinion of Martin V. Miller, Esq. and consent dated
4/20/98<F4>
(10) Opinion of Sanville Company - Certified Public Accountants
included in Annual Report for the year ending 12/31/97 which
is incorporated by reference in the Fund's 1997 Annual
Report.<F4>
Consent of Sanville & Company
(11) In Part B: The Registrant's Annual Report for the calendar
year ending 12/31/97 is incorporated by reference. Pursuant
to the requirements of Rule 303(b) of Regulation ST, the
following financial statements appearing in the Registrant's
12/31/97 Annual Report, filed in electronic format, are
included as exhibits to this filing.<F4>
(12) None
(13) Plan of Distribution adopted by The Kaufmann Fund, Inc.<F4>
-1-
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<PAGE>
Amendment No. 1 dated 7/1/93<F4>
(14) Financial Data Schedule
(15) None
[FN]
<F1> An Exhibit to Post-Effective Amendment No. 37 which was filed on
December 11, 1993.
<F2> An Exhibit to Post-Effective Amendment No. 43 which was filed on
March 15, 1995.
<F3> An Exhibit toPost-Effective Amendment No. 45 filed electronically
on March 11, 1996.
<F4> An Exhibit toPost-Effective Amendment No. 48 filed electronically
on April 30, 1998.
Item 24. Persons Controlled by or Under Common Control With Registrant
There are no persons controlled by or under common control with
Registrant.
Item 25. 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 withsuch
Proceeding, to the fullest extent that such indemnification may be lawful
under Maryland law.
(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
-2-
<PAGE>
<PAGE>
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.
(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
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<PAGE>
the Fund would have the power to indemnify him or her against such
liability.
Item 26. 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 27. Principal Underwriter
The Fund does not have a principal underwriter
Item 28. 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 29. Management Services
There are no management service contracts not described in Part A or Part
B of Form N-1A
Item 30. 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.
-4-
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Actof 1933 and the
Investment Company Act of 1940, the Registrant certifies that it 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 25th day of February, 1999.
THE KAUFMANN FUND, INC.
By: /s/ Hans P. Utsch
-----------------------------
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 Director, President February 25, 1999
- ------------------------ and Treasurer
HANS P. UTSCH
/s/ Lawrence Auriana Chairman of Board, February 25, 1999
- ------------------------ Director, Vice
LAWRENCE AURIANA President and
Secretary
/s/ Leon Lebensbaum Director February 25, 1999
- ------------------------
LEON LEBENSBAUM
/s/ Gerard M. Grosof Director February 25, 1999
- ------------------------
GERARD M. GROSOF
/s/ Pauline Gold Director February 25, 1999
- ------------------------
PAULINE GOLD
/s/ Roger E. Clark Director February 25, 1999
- ------------------------
ROGER E. CLARK
-5-
