Filed with the Securities and Exchange Commission on April 28, 2000
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
1933 Act File No. 2-28049
1940 Act File No. 811-1586
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /_/
Pre-Effective Amendment No. __ /_/
Post-Effective Amendment No. 51 /X/
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /_/
Amendment No. 50 /X/
THE KAUFMANN FUND, INC.
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(Exact Name of Registrant as Specified in Charter)
140 E. 45th Street, 43rd Floor, New York, NY 10017
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 922-0123
Hans P. Utsch, President Copy to:
The Kaufmann Fund, Inc. Joseph V. Del Raso, Esq.
140 E. 45th Street Pepper Hamilton LLP
43rd Floor 3000 Two Logan Square
New York, NY 10017 Eighteenth and Arch Streets
Philadelphia, PA 19103
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(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/_/ immediately upon filing pursuant to paragraph (b)
/X/ on May 1, 2000 pursuant to paragraph (b)
/_/ 60 days after filing pursuant to paragraph (a)(1)
/_/ on (date) pursuant to paragraph (a)(1)
/_/ 75 days after filing pursuant to paragraph (a)(2)
/_/ on (date) pursuant to paragraph (a)(2) of Rule 485.
[If appropriate, check the following box:]
/_/ This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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PROSPECTUS & APPLICATIONS O MAY 1, 2000
[Graphic Omitted]
THE
KAUFMANN
FUND, INC.
140 East 45th Street
New York, New York 10017
INVESTING IN GROWTH
COMPANIES FOR THE LONG TERM
THE FUND SEEKS CAPITAL APPRECIATION BY
INVESTING PRINCIPALLY IN COMMON STOCKS.
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FOR ASSISTANCE IN COMPLETING AN APPLICATION
OR QUESTIONS REGARDING SHAREHOLDER ACCOUNTS
(800) 261-0555
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As with all mutual funds, the Securities and Exchange Commission does
not determine if the information contained in this prospectus is
truthful or complete nor has it approved or disapproved any securities
offered in this prospectus. Anyone who tells you otherwise is
committing a crime.
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TABLE OF CONTENTS
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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,
performance and fees and expenses with other mutual funds. Please keep
it for future reference.
INFORMATION ABOUT THE FUND
OBJECTIVE ................................... 1
PRINCIPAL STRATEGIES ........................ 1
PRINCIPAL RISKS ............................. 1
PERFORMANCE ................................. 2
FEES AND EXPENSES ........................... 3
ADDITIONAL INVESTMENT STRATEGIES .................... 4
ACCOUNT INFORMATION
DETERMINING SHARE PRICE ..................... 5
PURCHASING SHARES ........................... 5
SELLING SHARES .............................. 7
SPECIAL INVESTOR SERVICES ................... 8
DIVIDENDS AND TAXES
DIVIDENDS AND DISTRIBUTIONS ................. 9
TAX CONSEQUENCES ............................ 9
MANAGING THE FUND
PORTFOLIO TURNOVER .......................... 10
DISTRIBUTION AND SERVICE PLANS .............. 10
FINANCIAL HIGHLIGHTS ................................ 11
THE POWER OF AUTOMATIC INVESTING .................... 12
APPLICATIONS
ACCOUNT APPLICATION ......................... 13
IRA APPLICATION ............................. 15
EDUCATION IRA APPLICATION ................... 17
IRA TRANSFER APPLICATION .................... 19
EDUCATION IRA TRANSFER APPLICATION .......... 20
PAYROLL DEDUCTION PLAN APPLICATION .......... 21
The Fund is not a complete investment program, but may serve to diversify other
types of investments in your portfolio.
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INFORMATION ABOUT THE FUND
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OBJECTIVE
The Fund's investment objective is capital appreciation.
PRINCIPAL 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 on 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:
o the growth prospects of existing products and new product development
o the economic outlook of the industry
o the price of the security and its estimated fundamental value
o relevant market, economic and political environments.
The Fund invests in individual companies for the long term. It buys stocks
of companies that it believes:
o are profitable and leaders in their industry
o have distinct products and services which address substantial markets
o can grow annual earnings by at least 20% for the next three to five
years
o have superior proven management and solid balance sheets.
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.
PRINCIPAL 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 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 the
individual company.
Since the Fund invests mostly in small and medium companies its share
price may fluctuate more than the share price of funds primarily invested
in large companies. These 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.
HANDS-ON-APPROACH
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EDGEMONT ASSET MANAGEMENT CORP-ORATION, 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 ASSET MANAGEMENT CONDUCTS IN-DEPTH MEETINGS WITH
MANAGEMENT, INDUSTRY ANALYSTS AND CONSULTANTS. THROUGH THIS INTERACTION
WITH COMPANIES EDGEMONT ASSET MANAGEMENT SEEKS TO DEVELOP A THOROUGH
KNOWLEDGE OF THE DYNAMICS OF THE BUSINESSES IN WHICH THE FUND INVESTS.
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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:
o seizure, expropriation or nationalization of a company's assets
o less publicly available information and differing regulations and
standards
o the impact of political, social or economic instability, or diplomatic
events
o securities that 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 solely 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, 1999. 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 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. These figures do not reflect the redemption fee. If the
fee was included performance would be lower.
YEAR-BY-YEAR TOTAL RETURN AS OF DECEMBER 31,
1990 -6.13%
1991 79.18%
1992 11.32%
1993 18.18%
1994 8.99%
1995 36.89%
1996 20.91%
1997 12.59%
1998 0.72%
1999 26.01%
Best quarter: 28.1% (1st quarter 1991)
Worst quarter: -18.7% (3rd quarter 1998)
AVERAGE ANNUAL RETURNS AS OF DECEMBER 31, 1999
1 YEAR 5 YEAR 10 YEAR
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The Kaufmann Fund 25.81% 18.58% 18.81%
Russell 2000 21.26% 16.69% 13.40%
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.
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FEES AND EXPENSES
This table describes the fees and expenses you may pay if you buy and hold
shares of the Fund.
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As a Fund shareholder, you do not pay any sales charges or exchange fees.
Annual expenses can vary from year-to-year. These fees are for the year
ended December 31, 1999.
SHAREHOLDER FEES
(fees paid directly from your investment)
REDEMPTION FEE(1)
(as % of redemption proceeds) 0.20 %
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management fee 1.50 %
Distribution (12b-1) fee(2) 0.36 %
Other expenses 0.24 %
Total Annual Fund Operating Expenses 2.10 %
Fee Waiver(3) (0.15)%
Net Operating Expenses 1.95 %
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(1) THE FUND IMPOSES A 0.20% FEE ON THE REDEMPTION OF ANY SHARES PURCHASED
AFTER FEBRUARY 1, 1985.
(2) THE MAXIMUM DISTRIBUTION FEE THAT COULD BE PAID IS 0.75%.
(3) UNDER A WRITTEN CONTRACT, EDGEMONT ASSET MANAGEMENT CORP. REIMBURSES
EXPENSES WHEN CERTAIN ANNUAL OPERATING EXPENSES OF THE FUND EXCEED
$650,000. THIS CONTRACT MAY BE TERMINATED OR AMENDED AT ANY TIME BY
EDGEMONT.
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. This example is based on the following
assumptions:
o $10,000 initial investment o 5% total return for each year
o total annual Fund operating expenses remain the same for each period
o selling and holding shares at the end of each period.
Your actual costs may be higher or lower, so use this example for comparison
only. Based on this information your costs at the end of each period would be:
UNDERSTANDING COSTS
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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.
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1 YEAR 3 YEARS 5 YEARS 10 YEARS
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WITH REDEMPTION $219 $634 $1,075 $2,301
WITHOUT REDEMPTION $198 $612 $1,052 $2,274
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ADDITIONAL INVESTMENT STRATEGIES
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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. An option is the right to buy or sell a security for an agreed
upon price. 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 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% of its net assets from banks for temporary
or emergency purposes, clearing transactions or for investment purposes.
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 funds 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 make 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.
INVESTING DEFENSIVELY
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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.
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ACCOUNT INFORMATION
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DETERMINING SHARE PRICE
The price at which you buy, sell or exchange Fund shares is the share
price or net asset value (NAV).
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
transaction is not processed until the next business day.
<TABLE>
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<CAPTION>
TYPE OF ACCOUNT MINIMUM INITIAL INVESTMENT MINIMUM ADDITIONAL INVESTMENT
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<S> <C> <C>
REGULAR ACCOUNTS
By Telephone N/A $1,000
By Mail $1,500 $ 100
By Automatic Investment $ 500 $ 50 monthly
By Payroll Deduction $ 500 $ 50 monthly
IRAs
By Mail $ 500 N/A
By Automatic Investment N/A $ 50 monthly
By Payroll Deduction $ 500 $ 50 monthly
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</TABLE>
CALCULATING NAV
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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.
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PAYING FOR FUND SHARES
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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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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.
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. Third party checks are not accepted.
<TABLE>
<S> <C> <C>
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OPENING AN ACCOUNT ADDING TO AN ACCOUNT
By Mail o Complete and sign the application Make check payable to:
o Make your check payable to: The Kaufmann Fund, Inc.
The Kaufmann Fund, Inc. o Include your account number on the check.
o Mail application and check to: o Mail check with the stub from your shareholder
Boston Financial Data Services, Inc. statement to the address on the left.
c/o The Kaufmann Fund, Inc.
P.O. Box 8331
Boston, MA 02266-8331
o Overnight mail:
66 Brooks Drive
Braintree, MA 02184
By Telephone N/A o Make the election on the application.
o Call (800) 261-0555 to place investment.
o Additional investments may not exceed $10,000,
or seven times your current account balance,
whichever is less.
o Payment must be received within 3 days.
By Wire o Complete and sign the application. o Wire funds to:
o Mail your application to the address State Street Bank & Trust Co.
above. ABA: 011000028 for credit to
o Call (800) 261-0555, or (617) 483-5000 BFDS Account #99050874
if overseas, to obtain an account The Kaufmann Fund, Inc.
number. [Your name and account number].
o Wire funds using the instructions at o Call (800) 261-0555 to advise of wire.
the right.
By Automatic N/A o Complete and sign the AIP section of the
Investment Program application.
Through an o Contact your financial professional or o Contact your financial professional or
Intermediary broker-dealer. broker-dealer.
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</TABLE>
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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. Redemption proceeds made by telephone will be transmitted to
your pre-designated account at a domestic bank. The telephone redemption
privilege may be modified or discontinued without notice to shareholders.
<TABLE>
<S> <C>
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SELLING SHARES
By Telephone or o Make the election on the application or in writing; otherwise you
Overseas will not be allowed to redeem by telephone.
Cable o Call (800) 261-0555, or (617) 483-5000 from overseas.
o Include shareholder name, tax identification number and account
number.
o Send a telegram or overseas cable to:
Boston Financial Data Services, Inc. o Overnight mail:
c/o The Kaufmann Fund, Inc. 66 Brooks Drive
P.O. Box 8331 Braintree, MA 02184
Boston, MA 02266-8331
By Mail o 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.
o Sign the request exactly as the shares are registered.
Through an o Contact your financial professional or broker-dealer.
Intermediary
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</TABLE>
SECURITY CONSIDERATIONS
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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.
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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 unless otherwise specified
on the letter of instruction, generally no later than the third business
day after the valuation date, unless it was agreed upon by the parties at
the time of the transaction.
<PAGE>
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, or the
check is payable or mailed to someone other than the account holder.
Additionally, a signature guarantee is required if your address has
changed within 30 days of your redemption request. Signature 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.
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 redemption means that you receive portfolio
securities rather than cash when redeeming your shares. If this occurs,
you will incur transaction costs 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 automatic investment plans, 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 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
exchange your Fund shares for shares of equal value of the Reserve Fund
and vice versa. 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 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.
The Reserve Fund is not affiliated with the Fund or its investment
adviser. The Reserve Fund is advised by Reserve Management Company, Inc.
and distributed by Resrv Partners Inc.
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.
<PAGE>
PAYROLL DEDUCTION PLAN
Regular investments in the Fund may be made through a Payroll Deduction
Plan by completing a separate payroll deduction plan 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 redemptions of Fund
shares may be sent to you, a person designated by you or to your bank
account.
IRAS, 401(K) AND 403(B) ACCOUNTS
Individual Retirement Accounts, 401(k) or 403(b) accounts are available.
SHAREHOLDER CONFIRMATION 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 annual statements as well as year-end tax information.
DIVIDENDS AND TAXES
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DIVIDENDS AND DISTRIBUTIONS
Distributions will be reinvested automatically in Fund shares, unless you
elect to receive them in cash. Most of the Fund's distributions are
expected to be from capital gains. The Fund generally makes two different
kinds of distributions:
o CAPITAL GAINS FROM THE SALE OF PORTFOLIO SECURITIES.
The Fund distributes any net realized capital gains annually, normally
in November.
o NET INVESTMENT INCOME FROM INTEREST OR DIVIDENDS RECEIVED.
The Fund distributes its investment income annually.
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.
TAX CONSIDERATIONS
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UNLESS YOUR INVESTMENT IS IN A TAX-DEFERRED ACCOUNT YOU MAY WANT TO AVOID:
o INVESTING IN THE FUND IMMEDIATELY BEFORE THE FUND DECLARES A CAPITAL
GAIN, AS IT RESULTS IN YOU RECEIVING SOME OF YOUR INVESTMENT BACK AS A
TAXABLE DISTRIBUTION.
o 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.
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TRANSACTION TAX STATUS
Income dividends Ordinary income
Short-term capital gains Ordinary income
Long-term capital gains Capital gains
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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.
MANAGING THE FUND
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Edgemont Asset Management Corp. provides advisory services solely to the
Fund and is responsible for its business affairs. Edgemont is located at
140 East 45th Street, New York, New York 10017. For its services, Edgemont
received an annual fee of 1.50% of the Fund's average daily net assets for
the year ended December 31, 1999. This advisory fee may be higher than the
fee charged by other mutual funds.
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, higher net taxable gains for
the investor and may reduce the Fund's return.
DISTRIBUTION AND SERVICE PLANS
The Fund has adopted a 12b-1 plan permitting it to pay an annual fee in
connection with the sale and 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 services and maintenance of shareholder
accounts. This annual service fee cannot exceed 0.25% of the Fund's
average daily net assets.
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 ASSET MANAGEMENT
CORP., AND MR. LAWRENCE AURIANA, PRESIDENT AND TREASURER. MR. UTSCH HAS
BEEN ENGAGED IN THE SECURITIES BUSINESS SINCE 1962, AND MR. AURIANA SINCE
1965. MESSRS. UTSCH AND AURIANA CO-FOUNDED EDGEMONT IN AUGUST, 1984 AND
HAVE MANAGED THE FUND SINCE MARCH 15, 1985.
--------------------------------------------------------------------------
<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.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 5.68 $ 6.37 $ 5.84 $ 5.05 $ 3.76
Income from Investment Operations:
Net Investment Income (Loss) (0.060) (0.040) (0.060) (0.030) (0.060)
Net Realized and Unrealized Gain (Loss) on Investments 1.316 0.017 0.795 1.083 1.445
------------------------------------------------------------
Total Income from Investment Operations 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 YEAR $ 5.95 $ 5.68 $ 6.37 $ 5.84 $ 5.05
TOTAL RETURN (a) 26.01% 0.72% 12.59% 20.91% 36.89%
RATIOS AND SUPPLEMENTAL DATA:
Net Assets, End of Year (in millions) $ 3,476 $ 4,621 $ 6,008 $ 5,341 $ 3,163
Ratio of Expenses (after expense reimbursement) to
Average Net Assets 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%
------------------------------------------------------------
Ratio of Expenses (after expense reimbursement less
interest expense) to Average Net Assets 1.94% 1.95% 1.88% 1.92% 2.16%
Ratio of Net Investment Income (Loss) to
Average Net Assets (1.19)% (0.66)% (1.00)% (0.82)% (1.24)%
Portfolio Turnover Rate 78% 59% 65% 72% 60%
(A) THE TOTAL RETURNS WOULD HAVE BEEN LOWER IF CERTAIN EXPENSES HAD NOT BEEN REDUCED.
</TABLE>
<PAGE>
THE POWER OF AUTOMATIC INVESTING
- --------------------------------------------------------------------------------
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>
THE KAUFMANN FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
------------------------
This Statement of Additional Information is not a prospectus and you should read
it in conjunction with the current prospectus of The Kaufmann Fund, Inc. dated
May 1, 2000. To obtain a copy of the Fund's prospectus, please call (800)
261-0555 or write: The Kaufmann Fund, Inc., 140 East 45th Street, 43rd Floor,
New York, New York 10017.
<PAGE>
TABLE OF CONTENTS
Page
----
Information about the Fund.....................................................4
Investment Policies and Strategies.............................................4
Risk Factors..................................................................10
Investment Restrictions....................................................10
Management Relationships, Directors and Compensation..........................10
Principal Stockholders........................................................10
Investment Advisory Services..................................................14
Brokerage Allocation..........................................................14
Potential Conflicts...........................................................15
Distribution Plan.............................................................16
Special Investor Services.....................................................16
Purchase and Redemption of Shares.............................................17
Taxes, Dividends and Capital Gains............................................18
Capital Stock.................................................................18
Transfer Agent, Custodian and Accounting Agent................................19
Auditor and Legal Counsel.....................................................19
Financial Statements..........................................................19
Performance Comparisons.......................................................19
Fund Performance Information .................................................20
<PAGE>
INFORMATION ABOUT THE FUND
The Kaufmann Fund, Inc. was originally incorporated as a New York corporation on
September 11, 1967. The Fund was inactive from January 1,1979 to February
21,1986, and became operational again 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 mutual fund
whose investment objective is capital appreciation. The Fund is registered under
the Investment Company Act of 1940, as amended (the 1940 Act).
As a diversified mutual fund, the Fund meets the requirement that at least cash
and cash items represent 75% of the value of its total assets, including
receivables, government securities, securities of investment companies and
"other securities". For purposes of this calculation, "other securities" are
limited in respect to any one issuer to an amount not greater in value than 5%
of the value of the total assets of the Fund and no more than 10% of the
outstanding voting securities of such issuer. The Fund shall not lose its
diversified status under the 1940 Act because of any subsequent discrepancies
between the value of its various investments and these requirements, as long as
these discrepancies occurred following the original acquisition of these
securities and are neither wholly nor partly the result of such acquisition.
INVESTMENT POLICIES AND STRATEGIES
The Fund has adopted the following investment policies and strategies.
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, provided that the Fund does not purchase either more than 3% of the
voting securities of any one investment company or securities of any investment
company having an aggregate value in excess of 5% of the total value of the
total assets of the Fund. The Fund must acquire these securities in the open
market, involving no commissions to a sponsor or dealer, other than customary
brokerage commissions. The Fund will not invest in an investment company that
has a contingent deferred sales charge, however; a redemption fee of up to
2/10ths of 1% would be considered acceptable.
Foreign Currency Contracts- The Fund utilizes foreign currency contracts to
facilitate transactions in foreign securities. Losses may arise from changes in
the value of foreign currency, or if counter parties do not perform under the
contract terms. The U.S. dollar value of the Fund's foreign currency contracts
is calculated using the currency exchange rate at the time the Fund's net asset
value is calculated. Net asset value can be affected by changes in currency
exchange rates and exchange control regulations. Consequently, the Fund may be
more volatile than if it did not invest in foreign securities.
Repurchase Agreements - Repurchase agreements are arrangements in which banks,
broker-dealers and other recognized financial institutions sell U.S. government
securities or certificates of deposits. There is an agreement at the time of
sale to repurchase the securities at a mutually agreed upon time and price
within one year from the date of acquisition. The Fund's custodian takes
possession of the repurchase agreement securities on behalf of the Fund. The
Fund will not enter into a repurchase agreement transaction with duration longer
than seven days, if the amount of such transaction plus other illiquid
securities equals more
3
<PAGE>
than 10% of the net assets of the Fund. Repurchase agreements are considered
loans under the 1940 Act.
The Fund will enter into repurchase agreements only with financial institutions
that management deems creditworthy, in order to help protect against potential
default from the seller. Default by the seller is a potential investment risk
inherent with these transactions. If the original seller does not repurchase the
securities from the Fund, thus defaulting on the repurchase agreement, the Fund
could possibly receive a lower repurchase price on a sale of such securities.
This default situation could occur in the event that the seller files for
bankruptcy or becomes insolvent. If a default situation occurs, the settlement
of such securities by the Fund could be delayed pending court action. The
custody rights of such repurchase agreements would remain with the Fund,
therefore; the Fund would be allowed to retain or dispose of such securities as
deemed necessary by management.
Option Contracts
The Fund may invest up to 10% of its net assets in options. An option is a
contract that gives its owner the right, but not the obligation, to buy (call)
or sell (put) a specified item at a fixed price (the exercise or strike price)
during a specified period. The buyer pays a nonrefundable fee (the premium) to
the seller (known as the writer).
A call provides a hedge against a possible increase in the price of the
underlying security. The call may be exercised at a profit if the price of the
security rises above the exercise price. A loss results if the price of the
security falls below the exercise price or if the option expires. A put provides
a hedge against a possible decline in the price of the underlying security. The
put may be sold at a profit if the price of the underlying security falls below
the exercise price. A loss results if the price of the underlying security
exceeds the exercise price or if the option expires.
Gains and losses on option transactions depend on the ability of the portfolio
manager to correctly predict the direction of stock prices, interest rates, and
other economic factors. The buyer of an option has limited risk; the maximum
risk is the premium paid.
Covered Option Writing
The obligation of the writer of a put or call option continues until the
expiration date, unless the option is exercised, which requires the writer to
deliver (call) or take delivery of (put) the underlying security upon the
receipt of the exercise price. In order to secure the obligation to deliver
(call) or to pay (put) for the underlying security, the writer is required to
deposit the security or other assets with a custodian. The option must also be
marked to market in accordance with the rules of the clearing corporation with
respect to the applicable exchanges and securities laws.
The principal reason for writing call options is an attempt to realize a greater
return than would be realized on the securities alone, via the receipt of
premiums. The writer of the covered call option has, in return for the premium,
given up the opportunity for profit from a price increase in the underlying
security above the exercise price, while retaining the risk of loss, should the
price of the security decline. Conversely, the writer of a put option has, in
return for the premium, given up the opportunity for a profit from a price
decline in the underlying security below the exercise price, while retaining the
risk of loss, should the price of the security increase.
4
<PAGE>
Risks Relating to Options
The option writer has no control over when he may be required to sell the
securities (call) or to purchase the security (put), since the option may be
exercised at any time prior to its expiration date. The writer of an option has
to bear the risk of an unfavorable price change in the security underlying the
option. For the writer of a covered option (i.e., the writer owns the security
underlying the option) the risk is limited to the relationship between the price
of the security and the option and to potential lost opportunity cost. For the
writer of a naked option (i.e., the writer does not own the security underlying
the option) the risk is unlimited.
An option may be closed out only on an exchange that provides a secondary market
for the option. 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 one will exist. Some reasons for the absence of a liquid
secondary market on an exchange include the following: (a) there may be
insufficient trading interest in certain options; (b) trading halts,
suspensions, or other restrictions may be imposed with respect to particular
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 be adequate to handle current trading volume; or
(e) one or more exchanges could, for economic or other reasons, decide or be
compelled to discontinue the trading of options or a particular class or series
of options, although outstanding options 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.
An additional risk exists if the amount of the premiums that the Fund may pay or
receive is adversely affected as other institutions engage in or increase their
option purchasing and writing activities.
Borrowing to Purchase Securities (Leverage)
The Fund may use leverage, that is, borrow money to purchase securities.
Leverage increases both investment opportunity and investment risk. If the
investment gains on securities purchased with borrowed money exceed the
borrowing costs (including interest), the net asset value of the Fund will rise.
On the other hand, if the investment gains fail to cover the borrowing cost or
if there are losses, the net asset value of the Fund will decrease.
The Fund may borrow money only if, immediately after the borrowing, the value of
its net assets are at least 300% of the amount of the borrowing. 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 loans 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. If, the Fund fails to meet this asset coverage test for any
reason, including adverse market conditions, 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
securities at a time when it is disadvantageous to do so.
Restricted and other Illiquid Securities
The Fund may invest up to 10% of the value of its net assets in illiquid
securities, which include private placements and other types of restricted
securities, as well as repurchase agreements with maturities over seven days.
Restricted securities are investments that may not be readily and publicly
marketable at a particular time. To value such securities, it may be necessary
for the Board of Directors to make good faith determinations of current value
(which in some cases will be at a discounted market value of that security
5
<PAGE>
that is not subject to restrictions). It may be difficult to sell restricted
securities at a price approximating what is deemed to be their current value.
There may also be a considerable time gap between the decision to sell a
restricted security and the actual sale, which can adversely affect the
obtainable or desirable price.
If the Fund sells any restricted securities, it may be deemed an "underwriter"
within the meaning of the Securities Act of 1933 and may be required to register
such securities under the Act. The Fund might incur substantial expenses for
such registration, if the issuer from whom the Fund acquired such securities has
not agreed to bear such expenses. Other than as described here, 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. This Rule allows certain qualified institutional
investors to trade privately placed securities despite the fact that such
securities are not registered under the 1933 Act. In deciding whether to
purchase such securities, the Fund, acting pursuant to procedures adopted by the
Board, will consider the frequency of such 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. If a Rule 144A security is
illiquid, the Fund's Board of Directors will determine what action, if any, is
required.
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. 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 at a later
date. The Fund will recognize a loss if the market price of the security
increases between the date of the short sale and the date on which the security
is replaced, or a gain if the security declines in value between those dates.
The Fund may only engage in short sale transactions in securities listed on one
or more national securities exchanges or on NASDAQ.
A short sale provides a possible hedge against the market risk of the value of
other investments and protects the Fund in a declining market. However, the Fund
could suffer both a loss on the purchase or retention of one security if its
price declines, and a loss on a short sale of another security if the price
increases. When a short position is closed out, it may result in a short-term
capital gain or loss for federal income tax purposes. In a generally rising
market, if the Fund maintains short positions in securities rising with the
market, the net asset value of the Fund would increase to a lesser extent than
had it not engaged in short sales. Among the factors which management may
consider in making short sales are a decreasing demand for a company's products,
lower profit margins, lethargic management, and a belief that a disparity exists
between the price of the security and its underlying assets or other values.
The Fund will not engage in a short sale transaction if it would 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 may
be 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. All short sales
must be fully collateralized. The Fund maintains the collateral in a segregated
account with its custodian. The collateral consists of cash or U.S. Government
securities equal to the market value of the securities at the time of the short
sale. The Fund will thereafter maintain, on a daily basis, the collateral to
ensure that it is equal to the current market value of the securities sold
short. The Fund may also sell short "against the box", i.e., the Fund owns
securities identical to those sold short. Short sales against the box are not
subject to the 25% limitation. A capital gain
6
<PAGE>
or loss is recognized immediately upon the sale of a short against the box.
Warrants
A warrant entitles the holder to buy a security at a set price during a set
period of time. The Fund invests in warrants to participate in an anticipated
increase in the market value of the security. If such market value increases,
the warrants may be exercised and sold at a gain. A loss will be incurred if the
market value decreases or if the term of the warrant expires before it is
exercised. Warrants convey no rights to dividends or voting. The Fund may invest
up to 5% of its net assets in warrants; however, warrants not listed on a
national exchange may not exceed 2% of net assets. This limitation does not
include warrants acquired by the Fund by attachment to a security.
Lending of Portfolio Securities
The Fund may lend portfolio securities to unaffiliated broker-dealers, banks or
other recognized institutional borrowers, for negotiated lender fees. Securities
loaned may not exceed 30% of the Fund's total assets. The borrower must maintain
cash or equivalent collateral or provide an irrevocable letter of credit equal
to 102% of the value of the securities loaned. The borrower pays the Fund any
dividends or interest paid on loaned securities. 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 collateral to the borrower. The Fund does not have the right to vote
securities on loan, but could terminate the loan and regain the right to vote if
it were considered important with respect to the investment.
The primary risk in securities lending is default by the borrower as the value
of a borrowed security rises, resulting in a deficiency in the collateral posted
by the borrower. The Fund seeks to minimize this risk by computing the value of
the securities loaned on a daily basis and requiring additional collateral, if
necessary.
The Fund will not lend its portfolio securities to Bowling Green Securities,
Inc., an affiliated broker-dealer.
Other than as described above, the Fund will not make loans, except to the
extent it invests in publicly distributed bonds, debentures or other debt
securities.
Short-Term Investments
A short-term investment is one held for a period of less than one year. The Fund
may invest in short-term investments in order to realize a profit or to avoid an
anticipated loss. Short-term transactions produce higher portfolio turnover
rates and may result in higher brokerage commissions than would otherwise be
incurred if the Fund engaged only in long-term transactions. There is no
guarantee that the Fund will obtain any gains from short-term investments.
RISK FACTORS
The purchase and sale of put and call options, leveraging, investing in
restricted and foreign securities, short sales, lending of portfolio securities
and short-term trading are investment techniques that are considered speculative
and may entail greater than average risk to the Fund, to the extent that they
are utilized. As such, the value of the Fund's shares may fluctuate to a greater
degree than if these techniques were not utilized. Accordingly, the Fund may not
be an appropriate investment vehicle for short-term investors.
7
<PAGE>
The Fund is designed for long-term investors and for those investors that have
the financial ability to undertake greater risk in exchange for potentially
greater long-term returns.
INVESTMENT RESTRICTIONS
The Fund may invest up to 25% of the value of its total assets in a particular
industry or market sector. This policy, as well as the following investment
restrictions, cannot be changed without the approval of the holders of a
majority of the Fund's shares. The term "majority" means the lesser of either
(1) 67% of the Fund's shares voted, provided that the holders of more than 50%
of the outstanding shares are present at a meeting, either in person or by
proxy; or (2) more than 50% of the Fund's outstanding shares. These restrictions
provide that the Fund shall not:
1. Purchase securities from brokers on margin.
2. Invest in commodities, commodity contracts, real estate and limited
partnership interests in real estate. However, 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, from others, or banks if the amount will cause the
Fund's net assets (including amounts borrowed) to be less than 300% of
the borrowings. If the Fund's net assets become less than 300% of the
borrowings, the Fund must reduce its borrowings to the extent required
to restore such 300% coverage, within three business days.
Furthermore, such borrowings must be collateralized by the deposit or
segregation of portfolio securities with the lending bank. In no case
will such borrowings exceed 50% of the net assets of the Fund, or will
pledged securities exceed 75% of the total assets of the Fund.
4. 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 securities of an issuer, if any affiliate (including the
Fund's officers and directors) owns more than 1/2 of 1%, individually;
or more than 5%, jointly, of the outstanding securities of such
issuer.
9. Invest 20% or more of its net assets in securities of issuers with an
operating history with less than three continuous years of operation.
10. Invest in oil, gas or mineral leases.
MANAGEMENT RELATIONSHIPS, DIRECTORS AND COMPENSATION
The Fund's Board of Directors is responsible for the Fund's management, and as
such, has certain fiduciary duties and obligations to the Fund's shareholders.
To follow is biographical information for each Director. An asterisk marks
directors who are "interested persons" of the Fund, as defined in Section 2(a)
(19) of the1940 Act. Generally speaking, "interested persons" are persons or
their close family members who have substantial financial or professional
relationships with investment companies or their investment advisors, principal
underwriters, officers or employees.
8
<PAGE>
*Hans P. Utsch, Age 63, 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 advisor, and has acted in this capacity since it's founding in August
1984. Together with Mr. Lawrence Auriana, he is a co-portfolio manager of the
Fund. Mr. Utsch graduated from Amherst College in 1958 and received his MBA from
Columbia University in 1960. He began his career at Berliner Handels Frankfurter
Bank in Germany and J. Henry Schroder Wagg in England. In 1962, he joined
Goodbody & Co. as an analyst and associate in corporate finance. There, he
shared primary responsibility for financing decisions for such companies as
Leasco Data Processing (now Reliance Insurance) and Kentucky Fried Chicken. In
1969 he assumed control and became principal shareholder of Hans Utsch & Co.
(now Bowling Green Securities, Inc.) a registered broker-dealer founded in 1933
by his father.
*Lawrence E. Auriana, Age 56, Director, Chairman of the Board 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 advisor, and has acted in this capacity since it's founding in August
1984. Together with Mr. Hans Utsch, he is co-portfolio manager of the Fund. Mr.
Auriana graduated from Fordham University in 1965 and attended New York
University Graduate School of Business. He is a senior member of the New York
Society of Security Analysts. Mr. Auriana began his career in 1965 as an
investment analyst for General Reinsurance Corporation. In 1975 he worked with
Hans Utsch & Co. (now Bowling Green Securities, Inc.) providing research to
institutional clients, with an emphasis on small growth companies. He was also
active as a venture capitalist, particularly in the areas of radio paging, oil
exploration and computer software. Mr. Auriana is Chairman of Mediware
Information Systems, a company that provides computer-based management
information systems for use in hospitals.
Roger E. Clark, Age 66, Director
One Hatfield Mews, 330 Elm Street, New Canaan, Connecticut 06840
Mr. Clark has been a member of the Board of Directors of the Fund since 1984. He
is also a member of the Board's Audit Committee. From 1980 to 1987, he was a
marketing executive for Xerox Corporation. Mr. Clark has also been self-employed
as a PC Systems Designer and Programming Consultant. Since 1997, Mr. Clark is
the co-owner of the advertising agency, Talcott & Clark Recruitment Advertising,
Inc., in New Canaan. Mr. Clark has also owned and operated a retail computer
store and has held various other management positions in the fields of marketing
and advertising.
Pauline Gold, Age 62, Director
1 Edgewater Plaza, Staten Island, New York 10305
Mrs. Gold has been a member of the Board of Directors of the Fund since 1984.
She received her BA at Rutgers University in 1959 with a major in Mathematics
and Political Science. She continued to postgraduate education at New York Law
School, where she received her LLB in 1961. She was a partner in the law firm of
McMahon & Lyons from 1964 to 1979. She also served as General Counsel to the
Borough President of Richmond County in New York City. Mrs. Gold has been
engaged in private practice since 1979.
9
<PAGE>
Gerard M. Grosof, Age 69,Director
48-23 42nd Street, Long Island City, New York 11104
Mr. Grosof has been a member of the Board of Directors of the Fund since 1984.
From 1980 to 1982 he served as an officer of CG Technology Corporation, a
contract research and development firm. He was Vice President, Treasurer and a
Director of Memory Metals, Inc., a metal alloy firm, from 1982-1985. Presently,
he is a high-technology venture capitalist and a Director of Quantametrics, Inc.
Leon Lebensbaum, Age: 76, Director
3601 Hempstead Turnpike, Levittown, New York 11756
Mr. Lebensbaum has been a member of the Board of Directors of the Fund since
1984. He is also a member of the Board's Audit Committee. Mr. Lebensbaum has
been an attorney since 1954 and a certified public accountant since 1955. Since
1970, he has been in private practice as general partner for the accounting firm
Lebensbaum & Russo. Prior to that, he was a Special Agent in the Intelligence
Division of the Internal Revenue Service. Mr. Lebensbaum is a member of the
American and New York Bar Associations, National Association of Certified Fraud
Examiners, New York Society of Certified Public Accountants, American Institute
of Certified Public Accountants-Tax Law Committee, American Accounting
Association, National Association of Accountants, and the National Conference of
CPA Practitioners.
The Directors, other than Messrs. Utsch and Auriana, each receive an annual
retainer of $25,000, plus $5,000 for each Board of Directors' Meeting attended
and $3,000 for each Committee Meeting attended, in addition to their expenses.
Director fees and expenses for the year ended December 31, 1999 totaled
$239,040. Set forth below is the amount of compensation paid to each Director
for the year ended December 31, 1999.
<TABLE>
<CAPTION>
Director Aggregate Compensation Retirement Benefits Total Compensation
- -------- ---------------------- ------------------- ------------------
<S> <C> <C> <C>
Hans P. Utsch ......... $ 0 $ 0 $ 0
Lawrence E. Auriana ....... 0 0 0
Roger E. Clark ......... 65,000 0 65,000
Pauline Gold ......... 56,000 0 56,000
Gerald M. Grosof ......... 50,000 0 50,000
Leon Lebensbaum ......... 65,000 0 65,000
</TABLE>
Code of Ethics
The Fund and its investment advisor each have adopted a Code of Ethics. This
Code permits personnel, subject to the Code, to invest in securities including
those that may be purchased or held by the Fund. However, such personal
investing must be pre-approved by the Fund's compliance officer and is subject
to certain restrictions designed to protect the interests of Fund shareholders.
PRINCIPAL STOCKHOLDERS
At March 31, 2000, Charles Schwab & Co., Inc., 333 Bush Street, San Francisco,
California 94104, and National Financial Services Corp., 82 Devonshire Street,
Boston, Massachusetts 02109; were owners of
10
<PAGE>
more than 5% of the Fund's outstanding shares, owning 16% and 7%, respectively.
These shares were held on behalf of undisclosed investors.
INVESTMENT ADVISORY SERVICES
Edgemont Asset Management Corp., incorporated in New York in August 1984, and
having its principal office at 140 East 45th Street, 43rd Floor, New York, New
York 10017; serves solely as the Fund's investment advisor. Messrs. Utsch and
Auriana are the sole shareholders and control persons of Edgemont.
At a Board of Directors' meeting held in October 1999, the Investment Advisory
Agreement between the Fund and Edgemont was approved for an additional one-year
term. This agreement will continue in effect until October 31, 2000, and for
successive annual periods, provided that such continuance is specifically
approved at least annually. The agreement must be approved by: (a) 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, upon sixty
days written notice, by the vote of a majority of the Fund's outstanding voting
shares, by the vote of a majority of the Fund's Board of Directors or by
Edgemont. This agreement will automatically terminate in the event of its
assignment.
As investment advisor, Edgemont determines the composition of the Fund's
portfolio, the nature and timing of the changes therein and the manner of
implementing such changes. Also provided are research and other related
services. The advisor performs such duties in accordance with directions
received from the Fund's Board of Directors. Edgemont furnishes to the Fund, at
no extra cost, the services of Edgemont's officers and employees, some who may
be duly elected executive officers or directors of the Fund.
Pursuant to the Investment Advisory Agreement, the Fund is obligated to pay
Edgemont a management fee equal to 1.5% of the Fund's average daily net assets.
Edgemont received management fees from the Fund of $50,896,955, $79,655,324 and
$85,089,829 for the years ended 1999, 1998 and 1997, respectively.
The Fund is responsible for effecting sales and redemptions of its shares, for
determining the net asset value thereof and for all of its other operations. The
Fund pays all administrative and other expenses attributable to its operations
and transactions, including; transfer agent fees, custodian fees, legal fees,
administrative and clerical services, auditing fees, services rendered,
printing, supplies, postage, state blue sky filings, taxes, directors fees and
expenses, and interest on bank loans.
In the past, as a condition of qualifying to sell the Fund shares in certain
jurisdictions, Edgemont was required to reimburse the Fund for certain annual
expenses that exceeded $650,000. Although it is no longer required to do so,
Edgemont, has voluntarily agreed to provide this reimbursement and is expected
to continue to do so in the future. Edgemont reimbursed Fund expenses in the
amounts of $5,168,466, $5,697,251 and $6,589,322 for the years ended 1999, 1998
and 1997, respectively.
The Fund's total expenses for the year ending December 31, 1999, before the
expense reimbursement, were $71,335,382; the net expenses after reimbursement
were $66,166,916 or 1.95% of average net assets.
11
<PAGE>
BROKERAGE ALLOCATION
Hans P. Utsch and Lawrence E. Auriana, as portfolio managers, are primarily
responsible for placing the portfolio brokerage business of the Fund. In all
brokerage orders, the managers seek the most favorable prices and executions.
Determining 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. Edgemont also considers the ongoing 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 broker-dealers a
commission for executing a particular transaction for the Fund, which may be in
excess of the amount of commission another broker-dealer would have charged; if
Edgemont determines, in good faith, that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of the particular transaction or of the overall
benefits to the Fund. For the year ended December 31, 1999, the Fund paid
brokerage commissions in the amount of $9,731,633 to brokers that provided
Edgemont with research services. These commissions were paid for securities
transactions valued at $3,364,151,202.
A person provides brokerage and research services insofar as they: (1) furnish a
service, either directly or through publications or writings, as to the value of
securities, the advisability of purchasing or selling securities and the
availability of purchasers and 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) as required 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.
As permitted by Section 17(e) of the Investment Company Act and Rule 17e-1 there
under, Bowling Green Securities may act as a broker to the Fund in connection
with the sale of various securities traded on an exchange. Bowling Green
Securities is an affiliate of Messrs. Utsch and Auriana; Hans P. Utsch is the
sole shareholder of Bowling Green and Lawrence Auriana is a registered
representative thereof. Pursuant to conditions and procedures adopted by the
Board of Directors of the Fund, in accordance with Rule 17e-1, Edgemont must
ascertain that any commissions, fees or other remuneration paid to Bowling Green
Securities are reasonable and fair compared to those of other brokers in
connection with transactions involving similar securities 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 are in accordance with Section 11(a) of the
Securities Exchange Act of 1934. The Securities and Exchange Commission is
authorized to regulate or prohibit broker-dealers such as Bowling Green
Securities from effecting transactions in securities owned by an account such as
the Fund, over which the principals of Bowling Green Securities have investment
discretion. Bowling Green Securities cannot buy or sell portfolio securities as
a principal from or to the Fund. 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.
To the extent that portfolio transactions are effected through Bowling Green
Securities as broker, any activity will be beneficial to that firm (and its
principal shareholder, Mr. Utsch) because of brokerage commissions payable in
connection therewith. For 1999, 1998 and 1997, the Fund paid $9,731,633,
$12,669,343, and $10,106,929, respectively, in brokerage commissions. Of these
amounts $50,100 $27,000 and $45,000, respectively, were paid to Bowling Green
Securities. The Board receives quarterly reports, prepared by the Fund's
independent public accountants, to review the exchange trades executed by
Bowling
12
<PAGE>
Green Securities at the end of each quarter. The Board continues to review the
appropriateness of the conditions and procedures on an annual basis.
POTENTIAL CONFLICTS
The affiliations of Hans P. Utsch and Lawrence E. Auriana as (1) a Director and
Officer of the Fund; (2) a 50% Shareholder and Officer of Edgemont; and (3) a
sole shareholder (Mr. Utsch) and affiliate (Mr. Auriana) of Bowling Green
Securities; 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 and do not perceive them as detrimental to the Fund.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan, pursuant to Rule 12b-1 under the 1940
Act, whereby the Fund or Edgemont may finance activities that are primarily
intended to result in the sale of Fund shares, including, but not limited to:
advertising, printing and mailing of prospectuses and reports for prospective
shareholders, printing and distribution of advertising material and sales
literature and the compensation of persons primarily engaged in the sale and
marketing of the Fund's shares. According to the Plan, the Fund may incur
distribution expenses of up to .75% per annum of the Fund's average net assets.
For the year ended December 31, 1999, distribution expenses incurred by the Fund
were $12,215,138; equivalent to .36% per annum of the Fund's average net assets.
Distribution Expenses for the year ended December 31, 1999
Advertising-Print......................................... $ 2,801,855
Broker-dealer fees........................................ 2,314,164
Advertising-Broadcast..................................... 1,982,576
Advertising-Internet...................................... 1,532,136
Printing.................................................. 1,298,507
Postage................................................... 1,117,716
Professional and other services rendered.................. 449,430
Employee compensation..................................... 384,117
List Rentals.............................................. 257,099
Other..................................................... 77,538
-----------
Total..................................................... $12,215,138
The Distribution Plan may not be amended to materially increase the amount the
Fund may spend, without shareholder approval. Any material amendments to the
Distribution Plan must be approved by the Fund's Board of Directors, including a
majority of the directors who are not interested persons, by a vote cast in
person at a meeting called for such a purpose. The Board of Directors receives a
quarterly report, documenting the amounts and purposes of payments under the
Distribution Plan. The Distribution Plan has been approved by the Board of
Directors, and will remain in effect until October 31, 2000, unless terminated
earlier by a vote of a majority of the Directors, who are not interested
persons, or by vote of a majority of the Fund's outstanding shares.
13
<PAGE>
SPECIAL INVESTOR SERVICES
The Kaufmann/Reserve Fund Money Market Switch Plan
The Fund offers a switch plan that allows shareholders to exchange their Fund
shares for shares of equal value of the Reserve Fund, and vice versa. The Fund
reserves the right to limit the number of switches made. Either the Fund or the
Reserve Fund may terminate the plan at any time. Transfers from the Fund are
subject to the redemption fee of .2%.
Automatic Investment Plan (AIP)
Periodic investments in the Fund may be made through an Automatic Investing
Plan, for which there is a one-time set-up charge of five dollars. A shareholder
may cancel their AIP at any time, without penalty. Since the Fund's shares are
subject to fluctuations in both income and market value, investors contemplating
an AIP should consider their financial ability to continue such investments and
should understand that such a program cannot protect against loss of value in a
declining market.
Payroll Deduction Plan
A payroll deduction plan enables an employer to deduct amounts directly from an
employee's paycheck for investment into the Fund. Investors should check with
their employer for availability of this service.
Systematic Withdrawal Plan
A Systematic Withdrawal Plan is available for owners of more that $5,000 of Fund
shares. Redemptions of shares may result in a gain or loss, which must be
reported as a capital gain or loss for income tax purposes.
Individual Retirement Account (IRA)
The Fund offers Traditional, Roth, Educatiion and SEP IRAs. Investors should
consult with their tax advisers before establishing an IRA account. To determine
eligibility and deductibility of an IRA contribution, investors should read the
IRA Disclosure Statement and Custodial Agreement, which may be obtained from the
Transfer Agent by calling (800) 261-0555.
Qualified Retirement Plans
The Fund offers Section 401(k) and 403(b) plans. Please contact the Transfer
Agent at (800) 261-0555 for details on eligibility and other information.
PURCHASE AND REDEMPTION OF SHARES
A detailed explanation on how to purchase and redeem shares of the Fund, as well
as how the net asset value (NAV) of such shares is determined, is contained in
the Fund's Prospectus.
The Fund, pursuant to Rule 18f-1 of the 1940 Act, intends to redeem shares for
cash, limited to each shareholder during any 90-day period to the lesser amount
of $250,000 or 1% of the net asset value of the Fund at the beginning of such
period. In order to protect the interest of remaining shareholders, the Fund
reserves the right to redeem its shares in-kind. In-kind payments allow the Fund
to select from one or more portfolio securities, equal in value to the total
value of the Fund shares being redeemed, as payment for redemptions. The value
of portfolio securities distributed in-kind will be equal to their value used
for calculating the net asset value of the Fund.
The Fund reserves the right to change or discontinue, without prior notices, any
of the procedures available
14
<PAGE>
for redemption requests.
TAXES, DIVIDENDS AND CAPITAL GAINS
The Fund intends to qualify as a regulated investment company under Subchapter M
of the Internal Revenue Code, and as such, is not subject to federal income
taxes to the extent that it distributes substantially all of its taxable income
to its shareholders. At least 90% of gross income must be derived from
dividends, interest, securities lending income and gains from the sale of
securities. If in any taxable year, the Fund should not qualify as a regulated
investment company: (a) 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 (b) distributions to shareholders, to the
extent made out of the Fund's current or accumulated earnings and profits, would
be taxable to them as ordinary dividends (regardless of whether they would
otherwise have been considered capital gains dividends). The Fund will utilize
any available capital loss carryovers prior to making any shareholder
distributions on profits realized on the sale of securities.
Federal tax law mandates that, if a shareholder fails to furnish and certify a
taxpayer identification number, or the Internal Revenue Service notifies the
Fund that a shareholder's taxpayer identification number is incorrect or that
withholding is otherwise required, the Fund is required to withhold, from such
shareholder, 31% of all dividend and income distributions and payments for
redemption proceeds. Once withholding is established, all withheld amounts will
be paid to the Internal Revenue Service, from whom such a shareholder should
seek any refund.
CAPITAL STOCK
The Fund has two billion shares of capital stock authorized, with a par value of
$0.10 per share. Only one class of stock is issued by the Fund, and as such,
have equal dividend, liquidation and voting rights. Each share is entitled to
one vote. The capital stock is redeemable at the option of the holder. 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 have the right to call a shareholders' meeting for
purposes of voting on the election or removal of a director. The shares have
non-cumulative voting rights, which means that the holders of more than 50% of
the shares 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 will not be
able to elect anyone to the Board of Directors.
TRANSFER AGENT, CUSTODIAN AND ACCOUNTING AGENT
Boston Financial Data Services, Inc., 2 Heritage Drive, North Quincy,
Massachusetts 02171, acts as shareholder servicing, dividend paying and transfer
agent of the Fund. State Street Bank and Trust Company, 225 Franklin Street,
Boston, Massachusetts 02110, serves as custodian of the Fund's assets, including
its portfolio securities that may be entered in the Federal Reserve Book Entry
System or the security depository systems of The Depository Trust Company. State
Street Bank and Trust Company also acts as the Fund's accounting agent,
calculating the net asset value and providing other accounting services to the
Fund. Neither the transfer agent nor the custodian and accounting agent
exercises any supervisory functions in such matters as the purchase and sale of
portfolio securities, payment of dividends or expenses.
15
<PAGE>
AUDITOR AND LEGAL COUNSEL
Sanville & Company, 1514 Old York Road, Abington, Pennsylvania 19001, is the
Fund's independent public accountant and audits the Fund's records and certifies
its financial statements. Pepper Hamilton LLP, 3000 Two Logan Square, Eighteenth
and Arch Streets, Philadelphia, Pennsylvania 19103-2799, serves as legal counsel
to the Fund.
FINANCIAL STATEMENTS
The Fund's financial statements for the year ended December 31, 1999, which can
be found in the 1999 Annual Report to shareholders, are incorporated by
reference into this Statement of Additional Information. The Annual Report also
contains the Fund's financial highlights for the past five years, which are set
forth in the current Prospectus.
PERFORMANCE COMPARISONS
The Fund's annual performance is most closely compared to that of the Russell
2000 Index. The Fund does not seek to match the returns of this index, but it 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.
The Fund's total return or performance may also be compared to that of other
funds that are tracked 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
using a fund's three and five-year average annual returns, sales charge
adjustments and a risk factor that reflects fund performance relative to
three-month Treasury bill returns.
Additional performance comparisons may be made to indices of stocks comparable
to those in which the Fund invests and the Consumer Price Index (measure for
inflation) 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 and
financial environment in which the Fund operates. Finally, the effect of
tax-deferred compounding on the Fund's investment returns, may be illustrated by
graphs or charts that compare the return from an investment in the Fund on a
tax-deferred basis, assuming reinvestment of capital gains and dividends and
assuming one or more tax rates, versus the return on a taxable basis.
FUND PERFORMANCE INFORMATION
The Fund may reflect its total return in advertisements and shareholder reports.
Total investment return is a widely recognized method of measuring mutual fund
investment performance. Average annual total return is shown in terms of the
average annual compounded rate of return on a hypothetical investment in the
Fund over a period of one, five and ten years. 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.
The Fund's average annual returns for the one, five and ten year periods ended
December 31, 1999 were 26%, 19% and 19% respectively.
16
<PAGE>
PART C
OTHER INFORMATION
Item 23. Exhibits
Exhibit No.
- -----------
(a) Certificate of Incorporation, as amended.(1)
(b) By-Laws.(1)
(c) None.
(d) Investment Management Agreement between The Kaufmann Fund, Inc.
and Edgemont Asset Management Corporation, as amended.(1)
Agreement Pursuant to Plan of Distribution between The Kaufmann
Fund, Inc. and Edgemont Asset Management Corporation - Amendment
No. 1 dated 7/1/93.(2)
(f) None.
(e) Custodian Agreement between The Kaufmann Fund, Inc. and State
Street Bank and Trust Company.(2)
Special Custody Account Agreement between The Kaufmann Fund,
Inc., State Street Bank and Trust Company, and Morgan Stanley
Prime Brokerage.(2)
(h) Transfer Agency and Service Agreement between The Kaufmann Fund,
Inc. and Boston Financial Data Services, Inc.(2)
Copy of Authorization Agreement for payment of Service Fees.(2)
(i) Legal Opinion of Martin V. Miller, Esq. and consent dated
4/20/98.(2)
(j) Consent of Sanville & Company - Certified Public Accountants is
filed herewith.
(k) Registrant's financial statements for the fiscal year ended
12/31/99 are incorporated by reference to Registrant's 1999
Annual Report filed via EDGAR on 4/11/00.
(l) None.
(m) Plan of Distribution pursuant to Rule 12b-1 adopted by The
Kaufmann Fund, Inc.2
Amendment No. 1 dated 7/1/93.2
(n) None.
C-1
<PAGE>
(o) Reserved.
(p) Code of Ethics; To be filed by subsequent amendment.
- ----------
(1) Previously filed as an Exhibit to Post-Effective Amendment No. 45 filed
electronically on March 11, 1996.
(2) Previously filed as an Exhibit to Post-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
with such 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 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
C-2
<PAGE>
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 the Fund would have the power to
indemnify him or her against such liability.
Item 26. Business and Other Connections of Investment Advisor
Edgemont Asset Management Corporation: Reference is made to Part B of this
Post-Effective Amendment under "Investment Advisory Services" and to Edgemont's
Form ADV as filed with the SEC (File No. 801-33077).
C-3
<PAGE>
Bowling Green Securities, Inc. 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.
C-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Post-Effective Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933,
as amended and that it has duly caused this Post-Effective Amendment 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 28th day of April, 2000.
THE KAUFMANN FUND, INC.
By: /s/ Hans P. Utsch
------------------------
Hans P. Utsch, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment has been signed below by the following persons in the capacities and
on the date indicated:
Signature Title Date
--------- ----- ----
/s/ Hans P. Utsch Director, President April 28, 2000
- --------------------------- and Treasurer
HANS P. UTSCH
/s/ Lawrence Auriana Chairman of Board, April 28, 2000
- --------------------------- Director, Vice President
LAWRENCE AURIANA and Secretary
/s/ Leon Lebensbaum Director April 28, 2000
- ---------------------------
LEON LEBENSBAUM
/s/ Gerard M. Grosof Director April 28, 2000
- ---------------------------
GERARD M. GROSOF
/s/ Pauline Gold Director April 28, 2000
- ---------------------------
PAULINE GOLD
/s/ Roger E. Clark Director April 28, 2000
- ---------------------------
ROGER E. CLARK
C-5
<PAGE>
EXHIBIT INDEX
Exhibit 23(j) Consent of Sanville & Co.
C-6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the use of our report, dated January 27, 2000, on the annual
financial statements and financial highlights of The Kaufmann Fund, Inc., which
is included in Part A and to the incorporation by reference of the annual
financial statements contained in the Fund's Annual Report for the period ending
December 31, 1999 in Part B in Post Effective Amendment No. 51 to the
Registration Statement under the Securities Act of 1933 and included in the
Prospectus and Statement of Additional Information, as specified, and to the
reference made to us under the caption "Independent Auditors" in the Statement
of Additional Information.
