<PAGE>
SEMI-ANNUAL REPORT o JUNE 30, 2000
[Graphic Omitted]
THE
KAUFMANN
FUND, INC.
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140 East 45th Street
New York, New York 10017
INVESTING IN GROWTH COMPANIES FOR THE LONG TERM
------------------------------------------
FOR QUESTIONS REGARDING YOUR ACCOUNT CALL:
(800) 261-0555
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<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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LETTER TO SHAREHOLDERS
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DEAR SHAREHOLDER:
We are pleased to report excellent results for the first six months of
2000. The Kaufmann Fund was up 13.1% in net asset value for the period
ended June 30, 2000. The Fund's compounded return for the one, five and
ten-year periods ended June 30, 2000, were 43.3%, 17.8% and 19%,
respectively.
Early in the second quarter there was a sharp market sell-off. This was a
healthy reaction, in our view, to the speculative excess that preceded it
-- particularly in certain areas of technology, biotechnology and the
internet. Since then, the market environment has improved considerably,
with investors once again at least talking about the importance of a
company's underlying fundamentals in determining the company's enterprise
value and stock price. With our life-long devotion to rigorous fundamental
research, we should prosper in this climate.
The relative valuations of true growth companies should become greater in
periods when most other companies begin to experience slower growth, and
when interest rates and inflation are stable. These are the circumstances
in which we find ourselves. As a consequence, the valuations of emerging
growth companies relative to large-caps have begun to improve for the
first time in years. In addition, the volatility of the market has
continued to increase. While we cannot deny how scary it can sometimes be,
it also creates the greatest opportunities for investors who understand
the fundamentals that determine intrinsic value. Today's investment
climate seems ideally suited for stock picking, which is precisely what we
know and do best.
The current global economic environment continues to be favorable for
investors. The worldwide trends of governments enacting sound economic
policies (balanced budgets, deregulation, free trade and lower taxes) and
of central bankers enacting non-inflationary monetary policies, combined
with accelerated advances in technology, have created a positive
environment for equity investors and Kaufmann Fund shareholders.
We thank you for your loyal support and look forward to serving you for
many years to come.
Sincerely,
/s/ Hans P. Utsch /s/ Lawrence Auriana
Hans P. Utsch Lawrence Auriana
Portfolio Co-Manager Portfolio Co-Manager
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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<TABLE>
FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
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<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------
June 30, 2000 1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.95 $ 5.68 $ 6.37 $ 5.84 $ 5.05 $ 3.76
Income from Investment Operations:
Net Investment Income (Loss) (0.036) (0.060) (0.040) (0.060) (0.030) (0.060)
Net Realized and Unrealized Gain on Investments 0.816 1.316 0.017 0.795 1.083 1.445
------------------------------------------------------------------
Total Income (Loss) from Investment Operations 0.780 1.256 (0.023) 0.735 1.053 1.385
Less Distributions:
From Net Investment Income -- -- -- -- -- --
From Net Realized Gains -- 0.986 0.667 0.205 0.263 0.095
------------------------------------------------------------------
Total Distributions -- 0.986 0.667 0.205 0.263 0.095
NET ASSET VALUE, END OF PERIOD $ 6.73 $ 5.95 $ 5.68 $ 6.37 $ 5.84 $ 5.05
TOTAL RETURN (a) 13.11 % 26.01 % 0.72 % 12.59 % 20.9 % 36.89 %
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RATIOS AND SUPPLEMENTAL DATA
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Net Assets, End of Period (in millions) $3,633 $3,476 $4,621 $6,008 $5,341 $3,163
Ratio of Expenses (after expense reimbursement)
to Average Net Assets (%) 1.88 %* 1.95 % 1.96 % 1.89 % 1.93 % 2.17 %
Ratio of Interest Expense to Average Net Assets (%) 0.01 %* 0.01 % 0.01 % 0.01 % 0.01 % 0.01 %
------------------------------------------------------------------
Ratio of Expenses (after expense reimbursement
less interest expense) to Average Net Assets (%) 1.87 %* 1.94 % 1.95 % 1.88 % 1.92 % 2.16 %
Ratio of Net Investment Income (Loss) to
Average Net Assets (%) (1.13)%* (1.19)% (0.66) (1.00) (0.82)% (1.24)%
Portfolio Turnover Rate (%) 37 % 78 % 59 % 65 % 72 % 60 %
(A) THE TOTAL RETURNS WOULD HAVE BEEN LOWER IF CERTAIN EXPENSES HAD NOT BEEN REDUCED. (SEE NOTE 3 OF NOTES TO FINANCIAL STATEMENTS.)
* ANNUALIZED
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
SCHEDULE OF INVESTMENTS
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STOCKS 84.4%
Value
Shares (000s)
------ ------
FINANCIAL 7.7%
FINANCE 6.3%
3 I Group PLC (GBP) ^ 550,000 $ 11,310
Capital One Financial Corporation 300,000 13,388
Concord EFS, Inc. * 5,950,000 154,700
Federal Agricultural Mortgage Corporation +* 519,000 7,558
GreenPoint Financial Corp. 621,600 11,655
Heller Financial, Inc. 236,500 4,848
IndyMac Mortgage Holdings, Inc. * 800,000 10,850
MBNA Corporation 400,000 10,850
Shohkoh Fund & Co. Ltd. (JPY) ^* 10,000 2,252
----------
227,411
----------
INSURANCE 1.0%
ACE Limited 400,000 11,200
Philadelphia Consolidated Holding Corp. +* 1,300,000 21,856
RTW, Inc. +* 1,170,100 4,424
----------
37,480
----------
VENTURE CAPITAL 0.4%
GreenField Technology Ventures Fund I, L.P. #* 1 94
incuVest LLC - Class A #* 1 5,000
Peachtree/CB Partners, LLC #* 1 2,742
Rocket Ventures II, L.P. #* 1 6,063
----------
13, 899
----------
REAL ESTATE 0.0%
Washington Real Estate Investment Trust 37,800 676
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676
----------
TOTAL FINANCIAL 279,466
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HEALTH 15.4%
HEALTHCARE SERVICES 3.9%
CompDent Corp. +#* 248,612 122
CompDent Corp.- Pfd. +#* 2,851 2,832
Healthcare Recoveries, Inc. +* 1,396,000 4,973
Latin Healthcare Fund, L.P. #* 1 9,079
Lincare Holdings, Inc. +* 4,846,100 119,335
Pacific Health Laboratories, Inc. #* 133,500 459
Peachtree Medichem Partners, LLC #* 30,078 1,468
PRWW Ltd. * 100,000 1,388
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139,656
----------
MEDICAL EQUIPMENT AND SUPPLIES 1.8%
Amira Medical - Series A Pfd. #* 250,000 1,375
Amira Medical - Series D Pfd. #* 1,000,000 5,500
Aspect Medical Systems, Inc. * 10,000 270
Bionx Implants, Inc. +* 862,750 2,103
Cardinal Health, Inc. * 100,000 7,400
Cortek, Inc. - Series C Conv. Pfd. #* 500,000 1,000
Cryolife, Inc.* 100,000 2,300
De Novo (Q) Ventures I, L.P. #* 4 2,000
ENDOcare, Inc. #* 749,100 15,169
INAMED Corporation * 200,000 7,325
Orthofix International N.V +* 826,900 14,781
PercuSurge, Inc. - Series E Pfd. #* 1,176,471 3,000
Sanarus Medical Incorporated - Series A Pfd. #* 666,667 1,000
ThermoGenesis Corp. #* 478,400 867
ThermoGenesis Corp. - Warrants #* 80,000 0
----------
64,090
----------
PHARMACEUTICAL AND BIOTECH 9.7%
ACADIA Pharmaceuticals Inc. #* 266,666 2,000
Aclara Biosciences Inc. * 70,000 3,566
Alexion Pharmaceuticals, Inc. +* 784,000 56,056
Allos Therapeutics Inc. * 450,000 4,387
Aradigm Corporation * 380,000 6,650
Aradigm Corporation #* 666,667 10,500
ArQule, Inc. +* 980,000 18,988
Aurora Biosciences Corporation +* 609,100 41,533
BioChem Pharma Inc. * 200,000 4,925
Biogen, Inc. * 50,000 3,225
Cephalon, Inc. * 480,000 28,740
Cephalon, Inc. - Pfd. Convertible 95,000 16,079
Charles River Laboratories International,
Inc * 220,000 4,881
CIMA Labs Inc. * 101,100 2,047
Collateral Theraupeutics, Inc. * 100,000 2,536
Corixa Corporation * 300,000 12,881
CV Therapeutics, Inc. * 350,000 24,259
diaDexus, Inc. - Series C Pfd. #* 645,161 5,000
Genomica Corporation - Series B Pfd. #* 9,722,222 7,000
Genomica Corporation - Series C Pfd. #* 2,245,595 3,368
Genzyme Transgenics Corporation * 150,000 4,069
IntraBiotics Pharmaceuticals, Inc.-
Series G Pfd. #* 750,000 16,013
LJL BioSystems, Inc. #* 482,700 8,417
LJL BioSystems, Inc. - Pfd. #* 272,500 3,696
Medarex, Inc.* 170,000 14,365
Peachtree/LeadScope, Inc. #* 1 683
Peptech Limited (AUD) ^#* 31,250 0
Pharmacopeia, Inc. * 100,000 4,638
Protein Design Labs, Inc. * 120,000 19,794
QTL PhotoTherapeutics Inc. * 50,000 3,866
SangStat Medical Corporation * 100,000 2,888
Waters Corporation * 100,000 12,481
Xenometrix, Inc. #* 6,619 0
----------
349,531
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TOTAL HEALTH 553,277
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RETAIL 5.1%
RESTAURANTS 3.2%
J.D. Wetherspoon plc (GBP) ^+ 20,500,000 116,319
Western Growth Capital Partners I, L.L.L.P #* 52,500 126
----------
116,445
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RETAIL 1.9%
AutoZone, Inc. * 800,000 17,600
Carrefour SA (FRF) ^* 75,000 5,127
Family Dollar Stores, Inc. 600,000 11,737
Lowe's Companies, Inc. 150,000 6,159
PETsMART, Inc. +* 7,783,000 26,268
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66,891
----------
TOTAL RETAIL 183,336
----------
SERVICES 17.1%
BUSINESS SERVICES 3.8%
Carey International, Inc. +* 400,000 5,550
Cendant Corporation * 5,000,000 70,000
Corporate Executive Board Company * 500,000 29,938
CoStar Group, Inc. * 300,100 7,521
Dispatch Management Services Corp. +* 1,548,000 2,032
Electricity Generating Authority of
Thailand (THB) ^* 10,000 7
Expeditors International of Washington,
Inc 200,000 9,500
Kroll-O'Gara Company * 223,400 1,494
The Titan Corporation * 30,000 1,343
TNT Post Group N.V. (NGL) ^ 400,000 10,788
----------
138,173
----------
MEDIA 7.7%
Citadel Communications Corporation * 400,000 13,975
Clear Channel Communications, Inc. * 1,000,000 75,000
Comcast Corporation * 300,000 12,150
Entercom Communications Corp. * 480,000 23,400
Grupo Televisa S.A * 100,000 6,893
Infinity Broadcasting Corporation - Class A * 2,025,000 73,786
Insight Communications Company, Inc. * 713,600 11,150
Lamar Advertising Company * 570,000 24,688
Martha Stewart Living Omnimedia, Inc. * 56,000 1,232
Panavision Inc. #* 20 1
SBS Broadcasting SA * 100,000 5,450
United Pan-Europe Communications N.V. (NGL) ^* 156,000 4,079
United Pan-Europe Communications N.V. ADR * 450,000 12,150
UnitedGlobalCom, Inc. * 300,000 14,025
----------
277,979
----------
RECREATION AND ENTERTAINMENT 0.7%
Championship Auto Racing Teams, Inc. * 486,900 12,416
CINAR Corporation +* 995,900 6,971
Dover Downs Entertainment, Inc. 359,900 5,039
Speedway Motorsports, Inc. * 100,000 2,300
----------
26,726
----------
TELECOMMUNICATION SERVICES 4.5%
American Tower Corp. * 800,000 33,350
Crown Castle International Corp. * 175,000 6,388
FLAG Telecom Holdings Limited * 150,000 2,231
Illuminet Holdings, Inc. #* 20,100 3,272
Illuminet Holdings, Inc. * 71,200 3,622
Intermedia Communications * 100,000 2,975
McLeodUSA Incorporated * 200,000 4,137
Netamerica.com Corporation #* 41,667 500
Netamerica.com Corporation - Warrants #* 20,833 0
Nextel Communications, Inc. * 200,000 12,237
Nextel Partners, Inc. * 206,000 6,708
Pinnacle Holdings Inc. * 250,000 13,500
Primus Telecommunications Group, Inc. * 300,000 7,463
Qwest Communications International Inc. * 350,000 17,391
SBA Communications Corporation * 25,000 1,298
TALK.com, Inc. * 1,522,700 8,851
Time Warner Telecom Inc. * 406,200 26,149
Viatel, Inc. * 275,000 7,855
World Access, Inc. #* 255,000 2,821
----------
160,748
----------
TRANSPORTATION 0.4%
Frontline Limited (NOK) ^* 750,000 9,178
OMI Corporation * 900,000 4,894
----------
14,072
----------
TOTAL SERVICES 617,698
----------
TECHNOLOGY 35.6%
COMPUTER HARDWARE AND PERIPHERALS 0.2%
Exabyte Corporation * 500,000 2,250
PixTech, Inc. * 1,082,531 2,097
Silicon Graphics, Inc. * 475,000 1,781
----------
6,128
----------
COMPUTER SOFTWARE 9.4%
Amdocs Limited * 2,075,000 159,256
Ariba, Inc. * 50,000 4,902
Check Point Software Technologies Ltd. * 380,000 80,465
Citrix Systems, Inc. * 140,000 2,651
ISG International Software Group Ltd. #* 45,000 765
Macromedia, Inc. * 240,000 23,205
OpenTV Corp. * 190,000 8,526
RealNetworks, Inc. * 40,000 2,023
SensAble Technologies, Inc. - Series B Pfd. #* 1,333,334 2,067
SensAble Technologies, Inc. - Series C Pfd. #* 443,979 1,474
Siebel System, Inc. * 335,000 54,794
----------
340,128
----------
DATA PROCESSING SERVICES 1.6%
Affiliated Computer Services, Inc. * 1,300,000 42,981
CSG Systems International, Inc. * 100,000 5,606
Ordina Beheer N.V. (NGL) ^* 197,100 6,586
PEC Solutions, Inc. * 21,400 174
Pegasus Solutions Inc. * 200,000 2,175
Ryan Hankin Kent, Inc. - Series B Conv
Pfd #* 2,000,000 2,000
----------
59,522
----------
NETWORKING AND TELECOMMUNICATION EQUIPMENT 5 6%
BreezeCOM Ltd. * 207,500 9,026
BreezeCOM Ltd.- Series B Conv. Pfd. #* 557,576 16,978
Cabletron Systems, Inc. * 300,000 7,575
Comverse Technology, Inc. * 100,000 9,300
Corning Incorporated 50,000 13,494
Efficient Networks, Inc. * 210,000 15,448
Extreme Networks, Inc. * 50,000 5,275
JDS Uniphase Corporation * 600,000 71,925
Methode Electronics, Inc. 350,000 13,519
P-Com, Inc. #* 2,516,990 11,452
Sawtek Inc. * 110,000 6,332
Stratos Lightwave, Inc. * 25,000 697
Tellabs, Inc. * 155,000 10,608
Vishay Intertechnology, Inc. * 300,000 11,381
----------
203,010
----------
ONLINE INTERNET INFORMATION 2.9%
America Online, Inc. * 550,000 29,013
Digital Impact, Inc. * 50,000 706
Emailthatpays.com Inc. #* 17,200 48
Getty Images, Inc. * 500,000 18,531
Go2Net, Inc. * 50,000 2,516
Hotel Reservations Network, Inc. +* 800,000 23,800
internet.com Corporation * 259,400 5,107
internet.com Ventures Partners III LLC #* 1 300
L90, Inc. * 150,000 1,575
Mail.com * 248,800 1,415
TMP Worldwide Inc. * 250,000 18,453
VeriSign, Inc. * 10,750 1,897
----------
103,361
----------
SEMICONDUCTOR AND EQUIPMENT 15.9%
Alliance Semiconductor Corporation * 150,000 3,684
Alpha Industries, Inc. * 800,000 35,250
ANADIGICS, Inc. * 359,300 12,239
ASM Lithography Holding N.V * 200,000 8,825
Atmel Corporation * 920,000 33,925
Cabot Microelectronics Corporation * 87,100 3,985
Cypress Semiconductor Corporation * 2,150,000 90,838
Infineon Technologies AG * 600,000 47,550
Integrated Device Technology, Inc. * 100,000 5,988
LSI Logic Corporation * 1,500,000 81,188
Marvell Technology Group Ltd. * 10,000 570
MIPS Technologies, Inc. * 65,826 2,534
Novellus Systems, Inc. * 500,000 28,281
Oak Technology, Inc. * 100,000 2,156
Pixelworks, Inc. * 310,000 7,053
PMC-Sierra, Inc. * 20,000 3,554
SDL, Inc. * 23,000 6,559
Vitesse Semiconductor Corporation * 2,100,000 154,481
Xilinx, Inc. * 540,000 44,584
----------
573,244
----------
TOTAL TECHNOLOGY 1,285,393
----------
OTHER 3.5%
ENERGY 3.0%
EEX Corporation * 2,133,300 12,400
Enron Corp. 215,000 13,868
Forest Oil Corporation * 658,900 10,501
Hardman Resources NL (AUD) ^#* 562,500 81
Input/Output, Inc. * 100,000 844
Ocean Energy, Inc. * 375,000 5,320
Oceaneering International, Inc. * 600,000 11,400
Sante Fe Snyder Corp. * 3,108,750 35,362
St. Mary Land & Exploration Company 400,000 16,825
Virginia Gas Company +* 593,000 2,001
----------
108,602
----------
INDUSTRIAL 0.5%
Buckeye Technologies Inc. * 155,000 3,400
Capstone Turbine Corporation * 1,000 45
HEICO Corp. - Class A 100,000 1,225
Masco Corporation 100,000 1,806
Simpson Manufacturing Co., Inc. * 200,000 9,563
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16,039
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TOTAL OTHER 124,641
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TOTAL STOCKS (COST $1,778,263) $ 3,043,811
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CONVERTIBLE BONDS 1.1%
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Face Value
Amount (000s)
------- -----
APP Finance (VII) Mauritius Limited $20,000,000 $ 14,500
3.5% 04/30/03
PETsMART, Inc. + 37,500,000 25,031
6.75% 11/01/04
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TOTAL CONVERTIBLE BONDS (COST $54,398) $ 39,531
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SHORT-TERM INVESTMENTS 14.5%
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Par Value
Value (000s)
------- -----
COMMERCIAL PAPER
Associates Corp. North America, 6.75%, 07/03/00 $ 49,883,000 $ 49,864
Associates First Capital Corp., 6.75%, 07/03/00 250,000,000 249,906
Citi Group Holdings Inc., 6.75%, 07/03/00 1,668,000 1,667
Clipper Receivables Corp., 6.78%, 07/03/00 171,560,000 171,496
Frigate Funding Corp., 6.80%, 07/03/00 51,656,000 51,637
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TOTAL SHORT-TERM INVESTMENTS (COST $524,570) $ 524,570
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CONTRACTS 0.0%
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Value
Contracts (000s)
--------- ------
PURCHASED OPTIONS
Currency options, strike price, expiration:
GBP, call @1.447, 08/31/00 78,000,000 $ 268
Equity options, strike price, expiration:
Cendant Corporation, call @ 15, 01/20/01 5,000 1,065
Cendant Corporation, call @ 20, 01/20/01 7,000 658
SOLD OPTIONS
Currency options, strike price, expiration:
GBP, call @ 1.52, 08/31/00 (78,000,000) (1,630)
Equity options, strike price, expiration:
Affiliated Computer Services, Inc.,
call @ 40, 10/21/00 (2,500) (219)
SDL, Inc., call @ 300, 12/16/00 (230) (1,771)
----------
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TOTAL CONTRACTS (COST $2,985) $ (1,629)
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TOTAL INVESTMENTS 100% $3,606,283
(COST $2,360,216)
==========
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SCHEDULE OF SECURITIES SOLD SHORT
-------------------------------------------------------------------------------
Value
Shares (000s)
------ ------
STOCKS
Quanta Services Inc. 10,000 $ 550
StarMedia Network, Inc. 10,000 189
TiVo Inc. 10,000 350
----------
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TOTAL SECURITIES SOLD SHORT $ 1,089
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LEGEND
% Represents percentage of total portfolio owned
^ Foreign Denominated Security:
AUD - Australian Dollar
FRF - French Franc
JPY - Japanese Yen
NOK - Norwegian Kroner
THB - Thai Baht
+ Affiliated Company (See Note 6 of Notes to Financial Statements)
# Restricted Security (See Note 7 of Notes to Financial Statements)
* Non - income producing during the period
-------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
(EXCEPT PER SHARE AMOUNT)
-------------------------------------------------------------------------------
ASSETS
-------------------------------------------------------------------------------
Investments in securities, at value (cost $2,360,216)
(See accompanying schedule) $3,606,283
Cash and cash equivalents 31
Deposit with custodian bank for securities sold short 940
Receivable from brokers for securities sold short 988
Receivable for investments sold 58,133
Receivable for Fund shares sold 920
Dividends and interest receivable 912
Other receivables 166
Shares of Investment Fund, at amortized cost, held as
collateral for securities loaned 923,784
----------
-------------------------------------------------------------------------------
TOTAL ASSETS $4,592,157
-------------------------------------------------------------------------------
LIABILITIES
Securities sold short, at value (proceeds $1,028)
(See accompanying schedule) 1,089
Payable for investments purchased 29,881
Payable for Fund shares redeemed 3,326
Payable to Investment Advisor 18
Other payables and accrued expenses 1,473
Payable upon return of securities loaned (Note 5) 923,784
----------
TOTAL LIABILITIES 959,571
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NET ASSETS $3,632,586
-------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $1,548,225
Accumulated net investment loss (253,282)
Accumulated undistributed net realized gain on investments
and foreign currency transactions 1,091,741
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 1,245,902
----------
NET ASSETS, FOR 539,827 SHARES OUTSTANDING $3,632,586
==========
NET ASSET VALUE PER SHARE
(based on 539,827 shares outstanding, 2,000,000 shares
authorized with $.10 per share par value) $6.73
=====
-------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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STATEMENT OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000
-------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
-------------------------------------------------------------------------------
INVESTMENT INCOME
-------------------------------------------------------------------------------
Interest (including income on securities loaned of $1,318) $ 11,164
Dividends, net of $41 foreign taxes withheld (including
$251 received from affiliated issuers) 1,487
Other (Note 3) 944
--------
-------------------------------------------------------------------------------
TOTAL INCOME $ 13,595
-------------------------------------------------------------------------------
EXPENSES
Investment advisory fee (Note 3) 27,566
Distribution fee (Note 3) 6,432
Shareholder servicing fees 2,116
Audit fees 234
Custodian fees and expenses 226
Interest expense (Note 8) 219
Printing and mailing expenses 199
Non-interested directors' fees and expenses 113
Legal fees 79
Registration fees 27
Miscellaneous expenses 110
--------
Total expenses before reimbursement 37,321
Expense reimbursement by Investment Advisor (Note 3) (2,780)
--------
NET EXPENSES 34,541
-------------------------------------------------------------------------------
NET INVESTMENT LOSS $(20,946)
-------------------------------------------------------------------------------
Realized and Unrealized Gain
Net realized gain (loss) on:
Investment securities (including net realized gain
of $73,905 on sales of investments in affiliated
issuers (Note 6)) 796,129
Foreign currency transactions (595)
--------
795,534
--------
Changes in net unrealized (depreciation) on:
Investment securities (324,690)
Assets and liabilities (103)
--------
(324,793)
--------
NET GAIN 470,741
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $449,795
========
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
-------------------------------------------------------------------------------
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------------------------------------------
<CAPTION>
AMOUNTS IN THOUSANDS
-----------------------------------------------
(Unaudited)
Six months Year
ended ended
June 30, 2000 December 31, 1999
-------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (20,946) $ (40,228)
Net realized gain 795,534 449,948
Change in net unrealized appreciation (depreciation) (324,793) 231,028
----------- -----------
Net increase in net assets resulting from operations 449,795 640,748
----------- -----------
Distributions to shareholders
From net investment income -- --
From net realized gain -- (512,373)
----------- -----------
Total distributions -- (512,373)
----------- -----------
Share transactions
Net proceeds from sales of shares 147,695 230,601
Reinvestment of distributions -- 496,927
Cost of shares redeemed (440,779) (2,001,046)
----------- -----------
Net decrease in net assets resulting from share transactions (293,084) (1,273,518)
----------- -----------
Total increase (decrease) in net assets 156,711 (1,145,143)
NET ASSETS
Beginning of period 3,475,875 4,621,018
----------- -----------
End of period $ 3,632,586 $ 3,475,875
=========== ===========
OTHER INFORMATION
Shares:
Sold 21,674 43,175
Issued in reinvestment of distributions -- 102,246
Redeemed (66,219) (374,248)
----------- -----------
Net decrease (44,545) (228,827)
=========== ===========
---------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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NOTES TO FINANCIAL STATEMENTS
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1 SIGNIFICANT ACCOUNTING POLICIES
The Kaufmann Fund, Inc. (the Fund) is registered under the Investment
Company Act of 1940 (the 1940 Act), as a diversified, open-end management
investment company. The Fund is incorporated in Maryland. The financial
statements have been prepared in conformity with generally accepted
accounting principles which permit management to make certain estimates
and assumptions.
SECURITY VALUATION
Investments in securities traded on a national securities exchange (or
reported on the NASDAQ national market) are stated at the last reported
sales price on the day of valuation; other securities traded in the
over-the-counter market and listed securities for which no sale was
reported on that date are stated at the last quoted bid price, except for
short positions and call options written, for which the last quoted asked
price is used. Short-term notes are stated at amortized cost, which is
equivalent to value. Restricted securities and other securities for which
quotations are not readily available are valued at fair value as
determined by the board of directors.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the prevailing
exchange rates at the end of the reporting period. Income receipts and
expense payments are translated into U.S. dollars at the prevailing
exchange rate on the respective dates of the transactions. Purchases and
sales of securities are translated into U.S. dollars at the contractual
currency exchange rates established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, dispositions of foreign currencies, and the difference between
the amount of accrued net investment income and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included in net realized and
unrealized gain or loss on investment securities.
INCOME TAXES
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes substantially all of its taxable income for its
fiscal year. Accordingly, no provision for Federal income taxes is
required.
INVESTMENT INCOME
Dividend income is recorded on ex-dividend date. Non-cash dividends
included in dividend income, if any, are recorded at the fair market value
of the securities received. Interest income is accrued as earned.
Investment income is recorded net of foreign taxes withheld when recovery
of such taxes is uncertain.
SECURITY TRANSACTIONS
Security transactions are recorded on trade date, which is the date the
order to buy or sell is executed. Gains and losses on securities sold are
determined on the basis of identified cost.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions are recorded on ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations,
which may differ from generally accepted accounting principles.
Permanent book and tax differences relating to shareholder distributions,
may result in reclassifications to paid-in capital and may affect the
per-share allocation between net investment income and realized and
unrealized gain/loss. Undistributed net investment income and accumulated
undistributed net realized gain/loss on investments and foreign currency
transactions may include temporary book and tax differences, which reverse
in subsequent periods. Any taxable income or gain remaining at fiscal year
end is distributed the following year.
2 OPERATING POLICIES
FOREIGN CURRENCY CONTRACTS
The Fund utilizes foreign currency contracts to facilitate transactions in
foreign securities. Losses may arise from changes in the value of the
foreign currency, or if counter parties do not perform under the contract
terms. The U.S. dollar value of foreign currency contracts is determined
using contractual currency exchange rates established at the time of each
trade. The cost of the foreign currency contracts is included in the cost
basis of the associated investment.
REPURCHASE AGREEMENTS
The Fund, through its custodian, takes possession through the Federal
Reserve Book Entry System, of the collateral pledged for investments in
repurchase agreements. The underlying U.S. Treasury or Federal Agency
Securities are valued daily on a mark-to-market basis to ensure that the
value, including accrued interest, is at least equal to the repurchase
price. In the event of default of the obligation to repurchase,
liquidation and/or retention of the collateral may be subject to legal
proceedings.
SHORT SALES
Short sales are transactions in which the Fund sells a security it does
not own, in anticipation of a decline in the market value of that
security. To complete such a transaction, the Fund must borrow the
security to deliver to the buyer upon the short sale; the Fund is then
obligated to replace the borrowed security by purchasing it in the open
market at some later date. The Fund will incur a loss if the market price
of the security increases between the date of the short sale and the date
on which the borrowed security is replaced. The Fund will realize a gain
if the security declines in value between those dates. All short sales
must be fully collateralized. The Fund maintains the collateral in a
segregated account with its custodian. At June 30, 2000, the cost of
securities purchased to cover short sales and the proceeds from securities
sold short were $9,753,434 and $10,781,855, respectively. Securities sold
short at June 30, 2000 and their related values are set forth in the
Schedule of Securities Sold Short.
3 INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Edgemont Asset Management Corporation (Edgemont) is the investment advisor
of the Fund. Certain officers and directors of the Fund are affiliated
with Edgemont. Edgemont's investment advisory fee is calculated on an
annual basis at 1.5% of the Fund's average net assets. For the six months
ended June 30, 2000, the Fund incurred investment advisory fees of
$27,566,253. Edgemont has voluntarily agreed to reimburse the Fund for
expenses, to the extent of the investment advisory fee, if the Fund's
annual expenses (other than brokerage commissions, capital items,
interest, taxes, extraordinary items and other excludable items) are in
excess of $650,000. A reimbursement of $2,779,768 was made for the six
months ended June 30, 2000. Edgemont has voluntarily agreed to continue to
provide this reimbursement in the future.
DISTRIBUTION FEE
The Fund has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act
whereby the Fund or Edgemont may finance activities which are primarily
intended to result in the sale of the Fund's shares, including, but not
limited to: advertising, printing of prospectuses and reports for
prospective shareholders, preparation and distribution of advertising
materials and sales literature, and payments to dealers and shareholder
servicing agents who enter into agreements with the Fund or Edgemont. The
Fund or Edgemont may incur such distribution expenses at the rate of 0.75%
per annum on the Fund's average net assets. For the six months ended June
30, 2000, distribution expenses of $6,432,126 were incurred by the Fund,
equivalent to .35% per annum of the Fund's average net assets.
REDEMPTION FEE
The Fund imposes a redemption fee of 0.2% on the redemption price of the
Fund's capital stock shares redeemed, if such shares were purchased after
February 1, 1985. The redemption fee is applied to the Fund's expenses for
providing redemption services, including, but not limited to: transfer
agent fees, postage, printing, telephone and related employment costs. Any
excess fee proceeds are added to the Fund's assets. For the six months
ended June 30, 2000, redemption fees of $896,786 were allocated to cover
the cost of redemptions. Excess fee proceeds of $12,707 were added to the
Fund's assets.
BROKERAGE COMMISSIONS
The Fund places a portion of its portfolio transactions with Bowling Green
Securities, Inc. (Bowling Green). For the six months ended June 30, 2000,
$20,000 of brokerage commissions were paid to Bowling Green. Certain
officers and directors of the Fund are affiliated with Bowling Green.
4 INVESTMENTS
PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities (excluding short-term investments and
securities sold short) aggregated $1,251,249,795 and $2,080,817,401,
respectively.
PORTFOLIO TURNOVER RATE
Portfolio turnover rate, which is calculated on the lesser of the costs of
investments purchased or the proceeds from investments sold (excluding
short-term investments and securities sold short) measured as a percentage
of the Fund's average monthly portfolio, was 37% for the six months ended
June 30, 2000.
TAX BASIS OF INVESTMENTS
As of June 30, 2000, the aggregate cost, for Federal income tax purposes,
of investment securities was $1,834,617,953. Accumulated net unrealized
appreciation aggregated $1,246,006,133, of which $1,414,133,392 related to
appreciated investment securities and $168,127,259 related to depreciated
investment securities.
5 PORTFOLIO SECURITIES LOANED
The Fund lends securities to certain brokers who pay the Fund negotiated
lenders' fees. These fees, less costs to administer the program, are
included in interest income and amounted to $1,317,783 for the six months
ended June 30, 2000. The Fund receives U.S. Treasury obligations and/or
cash as collateral against the loaned securities in an amount at least
equal to 102% of the market value of the loaned securities at the
inception of each loan. This collateral must be maintained at not less
than 100% of the market value of the loaned securities during the period
of the loan. At June 30, 2000, the value of the securities loaned and the
value of collateral was $907,231,135 and $923,783,877, respectively.
6 TRANSACTIONS WITH AFFILIATED COMPANIES
An affiliated company is a company in which the Fund has ownership of at
least 5% of the voting shares. Transactions with companies which are or
were affiliates are as follows:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
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PURCHASE SALES DIVIDEND
AFFILIATE COST COST INCOME VALUE
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<S> <C> <C> <C> <C>
Aastrom Biosciences, Inc. * $ -- $ 3,800 $ -- $ --
Aastrom Biosciences, Inc. Pfd. (restricted) * -- 395 -- --
Alexion Pharmaceuticals, Inc. * -- 3,716 -- 56,056
Alpha Industries, Inc. * -- 21,098 -- --
ArQule, Inc. * -- 24,749 -- 18,988
Aurora Biosciences Corporation * 70 73,973 -- 41,533
Billing Concepts Corp. * -- 3,812 -- --
Bionx Implants, Inc. * 331 83 -- 2,103
Carey International, Inc. * 507 1,439 -- 5,550
CINAR Corporation * -- 5,180 -- 6,971
CompDent Corp. (restricted) * -- -- -- 122
CompDent Corp. Pfd. (restricted) * -- -- -- 2,832
Cunningham Graphics International, Inc. * 219 3,891 -- --
Dispatch Management Services Corp. * 230 -- -- 2,032
Federal Agricultural Mortgage Corp. * -- -- -- 7,558
Hanger Orthopedic Group, Inc. * -- 2,538 -- --
Healthcare Recoveries, Inc. * -- -- -- 4,973
Hotel Reservations Network, Inc. * 20,253 2,850 -- 23,800
Hutchinson Technology Inc. 6%, 3/15/05 -- 17,052 -- --
J.D. Wetherspoon plc (GBP) 15,706 708 251 116,319
Lincare Holdings, Inc. * 11,296 7,345 -- 119,335
MAPICS, Inc. * -- 2,293 -- --
Orthofix International N.V * -- -- -- 14,781
PETsMART, Inc. * 5,285 -- -- 26,268
PETsMART, Inc., 6.75%, 11/01/04 -- 5,500 -- 25,031
Philadelphia Consolidated Holding Corp. * -- 1,369 -- 21,856
PSS World Medical, Inc. * -- 8,336 -- --
RTW, Inc. * -- -- -- 4,424
Systemax Inc. * -- 7,932 -- --
TriPath Imaging, Inc. * -- 1,053 -- --
United Payors & United Providers, Inc. * -- 6,238 -- --
US Oncology, Inc. * -- 19,486 -- --
Virginia Gas Company * -- -- -- 2,001
ZOLL Medical Corporation * -- 33,671 -- --
-------- -------- -------- --------
$ 53,897 $258,507 $ 251 $502,533
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* Non-income producing during the period.
</TABLE>
7 RESTRICTED SECURITIES
The Fund may not invest more than 10% of its net assets in securities
which are subject to legal or contractual restrictions on resale. At June
30, 2000, the Fund owned the following restricted securities (constituting
4.3% of net assets), which may not be publicly sold without registration
under the Securities Act of 1933. The Fund does not have the right to
demand that such securities be registered. The value of these securities
is determined by valuations supplied by pricing services or brokers, or if
not available, in good faith by or at the direction of the Board of
Directors. Certain of these securities may be offered and sold to
"qualified institutional buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
DATE OF SHARE/PAR -----------------------
DESCRIPTION ACQUISITION AMOUNT COST VALUE
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<S> <C> <C> <C> <C>
ACADIA Pharmaceuticals Inc. 05/03/00 266,666 $ 2,000 $ 2,000
Amira Medical - Series A Pfd. 04/12/99 250,000 1,375 1,375
Amira Medical - Series D Pfd. 04/12/99 1,000,000 5,500 5,500
Aradigm Corporation 03/10/99 666,667 7,000 10,500
BreezeCOM Ltd. - Series B Conv. Pfd. 11/05/99 557,576 2,300 16,978
CompDent Corp. 05/24/95 60,000 36 30
04/21/97 75,000 46 36
04/22/97 65,000 40 32
06/30/99 48,612 -- 24
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248,612 122 122
---------- -------- --------
CompDent Corp. - Pfd. 05/24/95 855 834 834
04/21/97 1,069 1,060 1,060
04/22/97 927 938 938
---------- -------- --------
2,851 2,832 2,832
---------- -------- --------
Cortek, Inc. - Series C Conv. Pfd. 02/29/00 500,000 1,000 1,000
De Novo (Q) Ventures I, L.P. 03/09/00 4 2,000 2,000
diaDexus, Inc. - Series C Pfd. 04/04/00 645,161 5,000 5,000
Emailthatpays.com Inc. 03/24/97 17,200 301 48
ENDOcare, Inc. 04/16/98 749,100 2,622 15,169
Genomica Corporation - Series B Pfd. 02/17/99 9,722,222 7,000 7,000
Genomica Corporation - Series C Pfd. 03/10/00 2,245,595 3,368 3,368
GreenField Technology Ventures Fund I, L.P. 06/15/98 1 88 94
Hardman Resources NL (AUD) 04/08/93 100,000 34 15
04/13/93 100,000 36 14
04/15/93 50,000 18 7
04/23/93 100,000 34 14
08/11/93 100,000 31 14
02/06/95 112,500 4 17
---------- -------- --------
562,500 157 81
---------- -------- --------
Illuminet Holdings, Inc. 02/04/98 20,100 358 3,272
incuVest LLC - Class A 01/06/00 1 5,000 5,000
internet.com Venture Partners III LLC 05/15/00 1 300 300
IntraBiotics Pharmaceuticals, Inc. -
Series G Pfd. 11/23/98 750,000 4,502 16,013
ISG International Software Group Ltd. 03/09/00 45,000 765 765
LJL BioSystems, Inc. 01/22/99 482,700 1,689 8,417
LJL BioSystems, Inc. - Pfd. 02/03/00 272,500 2,998 3,696
Latin Healthcare Fund, L.P. 07/15/97 1 1,000 1,000
09/28/98 -- 1,079 1,079
06/03/99 -- 3,000 3,000
05/16/00 -- 4,000 4,000
---------- -------- --------
1 9,079 9,079
---------- -------- --------
Netamerica.com Corporation 03/15/00 41,667 500 500
Netamerica.com Corporation - Warrants 03/15/00 20,833 -- --
Pacific-Health Laboratories, Inc. 08/09/96 133,500 501 459
Panavision Inc. 06/05/98 20 -- --
P-Com, Inc. 06/22/99 2,516,900 10,000 11,452
Peachtree/CB Partners, LLC 03/08/00 1 2,743 2,742
Peachtree/LeadScope, Inc. 06/30/00 1 683 683
Peachtree Medichem Partners, LLC 06/07/99 30,078 1,468 1,468
Peptech Limited (AUD) 07/19/93 31,250 76 --
PercuSurge, Inc. - Series E Pfd. 03/15/00 1,176,471 3,000 3,000
Rocket Ventures II, L.P. 07/20/99 1 6,250 6,063
Ryan Hankin Kent, Inc. - Series B Conv. Pfd. 06/05/00 2,000,000 2,000 2,000
Sanarus Medical Incorporated -
Series A Pfd. 11/16/99 666,667 1,000 1,000
SensAble Technologies, Inc. -
Series B Pfd. 12/23/97 1,333,334 2,064 2,067
SensAble Technologies, Inc. -
Series C Pfd. 04/05/00 443,979 1,474 1,474
ThermoGenesis Corp. 12/29/98 478,400 598 867
ThermoGenesis Corp. - Warrants 01/27/98 80,000 -- --
Western Growth Capital Partners I, L.L.L.P 12/31/97 52,500 166 126
World Access, Inc. 12/17/99 255,000 4,488 2,821
Xenometrix, Inc. 07/10/92 6,619 50 --
-------- --------
$104,417 $156,331
======== ========
</TABLE>
8 LINE OF CREDIT
The Fund has a secured $400,000,000 line of credit. The Fund is required
to pledge assets equivalent to its borrowings under the line of credit.
The Fund incurs a commitment fee on the unused portion of the line of
credit. Borrowings are charged interest at 0.50% over the current
overnight Federal Funds Rate. No compensating balances are required.
<PAGE>
THE KAUFMANN FUND, INC. SEMI-ANNUAL REPORT - JUNE 30, 2000 - UNAUDITED
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THE POWER OF AUTOMATIC INVESTING
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DOLLAR-COST AVERAGING: A PROVEN LONG-TERM INVESTMENT STRATEGY
Just as the stock market fluctuates with time, investor sentiment tends to
alternate between periods of enthusiasm and despair. Unfortunately,
investors tend to let their emotions guide their investment decisions. An
effective investment strategy that assists in overcoming the emotional
hazards of market volatility is "dollar-cost averaging." An investment
plan using dollar-cost averaging is also a convenient way to lower your
average investment cost.
The key investment concept behind dollar-cost averaging is that when
prices are up you purchase fewer shares and when prices are down you
purchase more. It is an automatic method to help you counter the natural
human impulse to buy high and to sell low.
The easiest and most painless way to dollar-cost average is to establish
an Automatic Investment Plan (AIP). With an AIP, you can arrange for money
to be withdrawn directly from your checking/savings account or paycheck.
There are no checks to write or phone calls to make -- everything is done
for you. It is a simple, effective and effortless way to set aside money.
Decide on an amount you would like to invest and a specific time to make
your investment. Maybe you want to invest $200 a month. Perhaps it would
work better to invest every two weeks by taking $100 out of each paycheck.
Once you have set an amount and a time period that works for your
situation -- stick with it! Dollar-cost averaging works best if you make
investments on a regular basis.
In the end, one of the greatest benefits of dollar-cost averaging is that
it commits you to investing regularly, regardless of what is happening in
the financial markets. You avoid the temptation to guess whether you are
purchasing shares at a market low or a market high, and you make building
assets for the future a good habit rather than an agonizing decision.
Although dollar-cost averaging cannot guarantee a profit or protect
against loss in declining markets, it can potentially help make market
fluctuations work to your advantage. Dollar-cost averaging, combined with
other key benefits such as diversification and professional management,
can give you the best opportunity to build wealth.
<PAGE>
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INVESTMENT ADVISOR
Edgemont Asset Management Corporation
140 East 45th Street, 43rd Floor
New York, New York 10017
(212) 661-2443
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CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
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TRANSFER AGENT
Boston Financial Data Services Inc.
P.O. Box 8331
Boston, Massachusetts 02266
(800) 261-0555
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LEGAL COUNSEL
Pepper Hamilton, LLP
3000 Two Logan Square
Philadelphia, Pennsylvania 19103
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INDEPENDENT AUDITORS
Sanville & Company
1514 Old York Road
Abington, Pennsylvania 19001
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This semi-annual report must be accompanied with or preceded by the Fund's
current prospectus.
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THE
KAUFMANN
FUND, INC.
[Graphic Omitted]
SEMI-ANNUAL REPORT
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SIX MONTHS ENDED JUNE 30, 2000
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