<PAGE>
ANNUAL REPORT o DECEMBER 31, 1999
[graphic omitted]
THE
KAUFMANN
FUND, INC.
- --------------------------------------------------------------------------------
140 East 45th Street
New York, New York 10017
INVESTING IN GROWTH COMPANIES FOR THE LONG TERM
------------------------------------------
For questions regarding your account call:
(800) 261-0555
------------------------------------------
<PAGE>
DEAR SHAREHOLDER:
The Kaufmann Fund, Inc. was up 26% in net asset value for 1999. The Fund's
compounded average annual returns for the five and ten-year periods ended
December 31, 1999, were 18.8% and 19.0%, respectively.
During the second half of 1999, small and mid-cap growth stocks began to rebound
from their depressed levels while large-cap growth stocks started to lose their
momentum. The rebound in the small and mid-cap market was confined, for the most
part, to just a few sectors such as the internet, communications, and
biotechnology. Eventually, we expect the rally in small and mid-cap growth
stocks to broaden considerably and to continue for several years.
The adjacent mountain chart illustrates the growth of a $10,000 investment in
The Kaufmann Fund compared to the Russell 2000 Index for the 10-year period
ended December 31, 1999. The Russell 2000 is an index of small and mid-cap
companies.
KAUFMANN FUND RUSSELL 2000
- --------------------------------------------------------------------------------
12/31/1990 $ 9,386.50 $ 8,052.32
12/31/1991 16,818.28 11,759.92
12/31/1992 18,722.23 13,924.89
12/31/1993 22,126.32 16,553.79
12/31/1994 24,114.48 16,251.89
12/31/1995 33,009.39 20,875.68
12/31/1996 39,913.19 24,319.26
12/31/1997 44,925.60 29,758.01
12/31/1998 45,247.50 28,999.93
12/31/1999 57,014.56 35,163.98
There is still an incredible dichotomy in the market between what we believe are
overpriced and underpriced issues. In all but the hottest sectors, the
valuations of the companies in the Fund's portfolio are, in our view, extremely
appealing and represent an excellent investment opportunity. As veteran
investment professionals who have lived through many market cycles, we believe
that investors will eventually value companies based upon measurable business
fundamentals such as profitability and competitive advantage. When that happens,
our shareholders should benefit from the systematic investment process that we
utilize through intensive, hands-on research into the management and strategies
of the companies in the Fund's portfolio.
The internet industry is a meaningful phenomenon that we are approaching very
carefully. However, in the intensely competitive world of the "dot.com"
companies, we believe that many of today's sizzling new issues are too
speculative. The Fund's strategy has been to invest in more seasoned companies
that provide the technology and infrastructure for the internet. The "dot.com"
companies could not be successful without these types of companies such as
semiconductors, networking, bandwidth, and software firms. We invest in
aggressive growth companies but we will not do so in a reckless manner. This may
have penalized us in the short-term, but we believe that it is the most prudent
and realistic approach to continue the solid long-term performance that our
shareholders have come to expect.
The progress in technology has sparked amazing advances in productivity for
companies across the economic spectrum. These advances in technology, and the
resolve of the central bankers to maintain stable prices, are positive factors
for equity investors and the Kaufmann Fund shareholders.
We are thankful for your continued support and look forward to serving you for
many years to come.
Sincerely,
/s/ Hans P. Utsch /s/ Lawrence Auriana
Hans P. Utsch Lawrence Auriana
Portfolio Co-Manager Portfolio Co-Manager
<PAGE>
<TABLE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR
- ---------------------------------------------------------------------------------------------------------------
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 on Investments 1.316 0.017 0.795 1.083 1.445
-----------------------------------------------
Total Income (Loss) 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. (See Note 3 of Notes to
Financial Statements.)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS
Value
Shares (000s)
------ ------
CONSUMER 1.1%
CONSUMER - NONDURABLES 1.1%
Hite Brewery Company (KRW) ^* 10,000 $ 342
Jones Apparel Group, Inc. * 1,345,800 36,505
-----------
TOTAL CONSUMER 36,847
-----------
FINANCIAL 2.6%
FINANCIAL - DOMESTIC 2.4%
ACE Limited 300,000 5,006
Cullen/Frost Bankers, Inc. 147,000 3,785
Donaldson, Lufkin & Jenrette, Inc. 100,000 4,838
Federal Agricultural Mortgage Corporation +* 519,000 10,477
GreenPoint Financial Corp. 621,600 14,802
Heller Financial, Inc. 311,100 6,242
IndyMac Mortgage Holdings, Inc. 680,000 8,670
Philadelphia Consolidated Holding Corp. +* 1,390,500 20,162
South Trust Corporation 85,000 3,214
Sovereign Bancorp, Inc. 1,100,000 8,198
-----------
85,394
-----------
FINANCIAL - FOREIGN 0.2%
Daeyu Regent Securities (KRW) ^* 26,000 504
Kookmin Bank (KRW) ^* 25,000 392
Korea Technology Banking Company (KRW) ^* 35,000 339
3 I Group PLC (GBP) ^* 222,000 3,963
-----------
5,198
-----------
TOTAL FINANCIAL 90,592
-----------
MEDICAL 15.5%
MEDICAL EQUIPMENT & SUPPLIES 2.9%
Amira Medical - Series A - Preferred #* 250,000 1,375
Amira Medical - Series D - Preferred #* 1,000,000 5,500
Anika Therapeutics, Inc. * 300,500 2,122
ATS Medical, Inc. * 227,000 3,390
Bionx Implants, Inc. +* 750,000 2,344
Endocardial Solutions, Inc. #* 444,445 3,889
ENDOcare, Inc. #* 1,713,000 14,453
ENDOcare, Inc. * 287,000 2,422
Hanger Orthopedic Group, Inc. +* 584,200 5,842
Lifecore Biomedical, Inc. * 60,000 1,268
Micro Therapeutics, Inc. * 200,000 1,538
Orthofix International N.V +* 826,900 11,835
PSS World Medical, Inc. +* 1,082,200 10,213
Sanarus Medical Incorporated
- Series A Preferred #* 666,667 1,000
ThermoGenesis Corp.
- Series A - Conv. Preferred #* 576,000 3,600
ThermoGenesis Corp. #* 800,000 1,900
ThermoGenesis Corp. - Warrants #* 80,000 0
Trex Medical Corporation #* 22,000 62
TriPath Imaging, Inc. +* 258,100 1,065
ZOLL Medical Corporation +* 725,000 27,686
-----------
101,504
-----------
MEDICAL SERVICES 6.6%
CompDent Corporation +#* 248,612 122
CompDent Corporation - Preferred +#* 2,851 2,832
Healthcare Recoveries, Inc. +* 1,396,000 5,061
Latin Healthcare Fund, L.P. #* 1 5,080
Lincare Holdings, Inc. +* 4,683,900 162,472
Medical Manager Corporation * 180,000 15,165
Orthodontic Centers of America, Inc. * 100,000 1,194
PacificHealth Laboratories, Inc. #* 140,000 315
Peachtree Medichem Partners, LLC #* 30,078 1,463
RTW, Inc. +* 1,170,100 6,728
United Payors & United Providers, Inc. +* 322,300 5,338
US Oncology, Inc. +* 4,857,000 23,981
-----------
229,751
-----------
PHARMACEUTICAL & BIOTECH 6.0%
Aastrom Biosciences, Inc. +* 1,500,000 1,172
Aastrom Biosciences, Inc. - Preferred +#* 135,062 74
Alexion Pharmaceuticals, Inc. +* 837,300 25,224
Aradigm Corporation * 300,000 2,850
Aradigm Corporation #* 666,667 5,700
ArQule, Inc. +* 2,000,000 20,500
Aurora Biosciences Corporation +* 1,726,300 45,747
BioChem Pharma Inc. * 110,000 2,392
Cephalon, Inc. - Preferred Convertible 100,000 10,037
Cephalon, Inc. - Class A-Wts #* 480,000 11,752
Cephalon, Inc. - Class B-Wts #* 160,000 3,917
Collateral Theraupeutics, Inc. * 100,000 1,912
CV Therapeutics, Inc. * 250,000 6,516
EPIX Medical, Inc. * 359,000 3,590
Genomica Corporation - Series B Pfd. #* 9,722,222 7,000
IntraBiotics Pharmaceuticals, Inc.
- Series G Pfd. #* 1,500,000 4,502
LJL BioSystems, Inc. #* 857,143 6,075
Medarex, Inc. * 170,000 6,333
Peptech Limited (AUD) ^#* 31,250 0
Pharmacyclics, Inc. * 25,000 1,031
Protein Design Labs, Inc. * 500,000 35,000
SangStat Medical Corporation * 91,300 2,716
Titan Pharmaceuticals, Inc. #* 46,131 0
Urogen Corp. #* 66,500 0
Xenometrix, Inc. #* 6,619 0
-----------
204,040
-----------
TOTAL MEDICAL 535,295
-----------
RETAIL 6.0%
RESTAURANTS 3.5%
J.D. Wetherspoon plc (GBP) ^+ 17,513,144 $ 122,774
-----------
122,774
-----------
RETAIL 2.5%
AutoZone, Inc. * 350,000 11,309
Circuit City Stores, Inc.
- Circuit City Group 499,500 22,509
Office Depot, Inc. * 900,000 9,844
PETsMART, Inc. +* 6,080,000 34,960
Systemax Inc. +* 887,700 7,545
Western Growth Capital
Partners I, L.L.L.P #* 52,500 165
-----------
86,332
-----------
TOTAL RETAIL 209,106
-----------
TECHNOLOGY 35.5%
COMPUTER HARDWARE & ACCESSORIES 0.6%
Gadzoox Networks, Inc. * 76,700 3,341
PixTech, Inc. * 678,169 1,526
PixTech, Inc. #* 1,000,000 2,250
PixTech, Inc. - Conv. Pfd. #* 266,297 6,020
Silicon Graphics, Inc. * 200,000 1,963
VA Linux Systems, Inc. * 20,000 4,133
-----------
19,233
-----------
COMPUTER SERVICES 6.8%
Affiliated Computer Services, Inc. * 1,553,700 71,470
APAC Customer Services Inc. * 275,000 3,867
Billing Concepts Corp. +* 748,200 4,863
Concord EFS, Inc. * 3,800,000 97,850
CSG Systems International, Inc. * 1,000,000 39,875
Illuminet Holdings, Inc. #* 20,100 3,288
Illuminet Holdings, Inc. * 50,000 2,750
Whitman-Hart, Inc. * 175,000 9,385
Xpedior Incorporated * 50,500 1,452
-----------
234,800
-----------
COMPUTER SOFTWARE 13.8%
Amdocs Limited * 4,500,000 155,250
Bluestone Software, Inc. * 76,900 8,843
Check Point Software Technologies Ltd. * 429,900 85,443
Citrix Systems, Inc. * 700,000 86,100
GreenField Technology Ventures
Fund I, L.P. #* 1 100
GreenField Technology Ventures
Fund II, L.P. #* 1 500
iManage, Inc. * 35,000 1,124
Inso Corporation * 100,000 3,225
MAPICS, Inc. +* 445,100 5,619
McAfee.com Corporation * 30,000 1,350
MetaSolv Software, Inc. * 41,000 3,352
NDS Group plc * 6,500 198
OpenTV Corp. * 210,000 16,853
Persistence Software, Inc. * 85,000 1,913
Phoenix Technologies Ltd. * 65,500 1,036
Progress Software Corporation * 25,000 1,419
Scientific Learning Corporation * 200,000 7,300
SensAble Technologies, Inc. #* 1,333,334 2,064
Siebel System, Inc. * 760,000 63,840
Sterling Commerce, Inc. * 50,000 1,703
SilverStream Software, Inc. * 41,000 4,879
Synopsys, Inc. * 375,000 25,031
-----------
477,142
-----------
INTERNET 2.2%
CareInsite, Inc. * 103,000 8,291
Cybergold, Inc. * 170,000 3,007
Critial Path, Inc. * 100,000 9,437
deltathree.com, Inc. * 120,000 3,090
Digital Impact, Inc. * 7,500 376
Egreetings Network, Inc. * 675,000 6,834
El Sitio, Inc. * 85,000 3,124
Exactis.com, Inc. * 50,000 1,216
FreeMarkets, Inc. * 5,100 1,741
GoTo.com, Inc. * 6,000 352
HomeSeekers.com, Inc. * 286,000 3,754
InfoSpace.com, Inc. * 60,000 12,840
internet.com Corporation * 195,400 10,210
Mail.com * 300,000 5,625
NetCreations, Inc. * 20,000 880
TMP Worldwide Inc. * 50,000 7,100
-----------
77,877
-----------
NETWORKING 0.3%
3 Com Corporation * 100,000 4,700
BreezeCOM Ltd. (ILS) ^#* 278,788 2,300
Cisco Systems, Inc. * 5,000 536
Garnet Systems Co., Ltd. (KRW) ^* 15,000 326
Garnet Systems Co., Ltd. - Rights (KRW) ^* 1,620 0
RADWARE Ltd. * 72,500 3,127
SonicWall, Inc. * 20,000 805
-----------
11,794
-----------
SEMICONDUCTOR & EQUIPMENT 11.8%
Advanced Micro Devices, Inc. * 500,000 14,469
Alpha Industries, Inc. +* 634,900 36,388
Altera Corporation * 350,000 17,347
ANADIGICS, Inc. * 263,000 12,410
Atmel Corporation * 940,000 27,789
Cypress Semiconductor Corporation * 2,300,000 74,462
Integrated Device Technology, Inc. * 200,000 5,800
LSI Logic Corporation * 850,000 57,375
Metalink Ltd. * 30,000 611
Microchip Technology Incorporated * 200,000 13,687
Micron Technology, Inc. * 200,000 15,550
NVIDIA Corporation * 175,000 8,214
Oak Technology, Inc. * 100,000 944
PC-Tel, Inc. * 100,000 5,250
QuickLogic Corporation * 185,000 3,052
Sage, Inc. * 40,000 775
Samsung Electronics (KRW) ^* 2,500 586
Silicon Image, Inc. * 25,000 1,752
Vitesse Semiconductor Corporation * 1,600,000 83,900
Xilinx, Inc. * 600,000 27,281
-----------
407,642
-----------
TOTAL TECHNOLOGY 1,228,488
-----------
TELECOMMUNICATIONS 9.8%
COMMUNICATIONS EQUIPMENT 4.1%
Corning Incorporated 100,000 12,893
JDS Uniphase Corporation * 556,000 89,690
P-Com, Inc. #* 2,516,990 10,000
Powerwave Technologies, Inc. * 357,500 20,869
RF Micro Devices, Inc. * 50,000 3,422
SDL, Inc. * 25,000 5,450
-----------
142,324
-----------
TELECOMMUNICATION SERVICES 5.7%
American Tower Corp. * 750,000 22,922
Broadwing Inc. 500,000 18,437
Crown Castle International Corp. * 50,000 1,606
Global TeleSystems Group, Inc. * 500,000 17,313
Infonet Services Corporation * 30,000 787
ITC /\ DeltaCom, Inc. * 312,500 8,633
Level 3 Communications, Inc. * 75,000 6,141
Nextel Communications, Inc. * 100,000 10,313
PSINet Inc. * 117,596 7,262
Primus Telecommunications Group, Inc. * 200,000 7,650
Qwest Communications International Inc. * 500,000 21,500
SBA Communications Corporation * 100,000 1,875
Somera Communications, Inc. * 750,000 9,328
TALK.com, Inc. * 1,400,000 24,850
Telecorp PCS Inc. * 50,000 1,900
Time Warner Telecom Inc. * 281,200 14,042
Triton PCS Holdings, Inc. * 40,000 1,820
Verio Inc. * 200,000 9,237
World Access, Inc. #* 300,000 5,280
World Access, Inc. * 200,000 3,850
Z-Tel Technologies, Inc. * 45,000 1,817
-----------
196,563
-----------
TOTAL TELECOMMUNICATIONS 338,887
-----------
OTHER 26.2%
ENTERTAINMENT 0.4%
Championship Auto Racing Teams, Inc. * 486,900 11,199
Realm Production and Entertainment, Inc. * 17,200 84
Speedway Motorsports, Inc. * 100,000 2,781
-----------
14,064
-----------
INDUSTRIAL 0.5%
Eastern Water Resources Dev. & Mgmt
PCL (THB) ^* 660,000 491
HEICO Corp. - Class A * 200,000 4,225
Phoenix Pulp & Paper Pcl (THB) ^* 201,100 0
Simpson Manufacturing Co., Inc. * 238,500 10,434
-----------
15,150
-----------
MEDIA & INFORMATION SERVICES 11.5%
CINAR Corporation +* 1,600,000 39,200
Citadel Communications Corporation * 246,400 15,985
Classic Communications, Inc. * 19,500 712
Clear Channel Communications, Inc. * 1,000,000 89,250
Cunningham Graphics International, Inc. +* 170,000 2,369
Entercom Communications Corp. * 475,000 31,350
Getty Images, Inc. * 375,000 18,328
Infinity Broadcasting Corporation - Class A * 2,075,000 75,089
Insight Communications Company, Inc. * 1,000,000 29,625
Lamar Advertising Company * 570,000 34,521
Martha Stewart Living Omnimedia, Inc. * 56,000 1,344
Panavision Inc. #* 46,363 0
Radio Unica Communications Corp. * 100,000 2,888
SBS Broadcasting SA * 67,000 3,262
Spanish Broadcasting System, Inc. * 150,000 6,038
UnitedGlobalCom, Inc. * 300,000 21,188
United Pan-Europe Communications N.V. ADR * 150,000 19,125
United Pan-Europe Communications N.V. (EUR) ^* 52,000 6,653
-----------
396,927
-----------
OFFICE BUSINESS EQUIPMENT 0.3%
Danka Business Systems ADR * 837,500 10,626
-----------
10,626
-----------
OIL & GAS 1.3%
EEX Corporation * 1,350,000 3,966
Forest Oil Corporation * 310,600 4,096
Hardman Resources NL (AUD) ^#* 562,500 46
Ocean Energy, Inc. * 375,000 2,906
Oceaneering International, Inc. * 300,000 4,481
St. Mary Land & Exploration Company 400,000 9,900
Sante Fe Snyder Corp. * 2,408,750 19,270
SK Corporation (KRW) ^* 7,977 242
Virginia Gas Company + 593,000 1,853
-----------
46,760
-----------
REAL ESTATE 0.1%
IRSA Inversiones y Representaciones S.A 102,959 3,327
-----------
3,327
-----------
SERVICE 12.1%
Carey International, Inc. +* 520,000 12,675
Cendant Corporation * 12,665,000 336,414
Charles River Associates Incorporated * 68,300 2,288
Corporate Executive Board Company * 475,000 26,541
CoStar Group, Inc. * 300,100 10,766
Dispatch Management Services Corp. +* 1,419,700 4,170
Electricity Generating Authority of
Thailand (THB) ^* 10,000 9
Expeditors International of Washington, Inc. 200,000 8,763
Kroll-O'Gara Company * 223,400 3,686
United Parcel Service, Inc. 200,000 13,800
-----------
419,112
-----------
TOTAL OTHER 905,966
-----------
- -----------------------------------------------------------------------------
TOTAL STOCKS (COST $1,777,507) $ 3,345,181
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS 0.0%
- -----------------------------------------------------------------------------
Par Value
Value (000s)
----------- ------------
REPURCHASE AGREEMENTS - 0.0%
State Street Bank and Trust Company,
2.60%, dated 12/31/99, due 01/03/00
(collateralized by Federal Agency
Securities) $ 510,000 $ 510
- -----------------------------------------------------------------------------
TOTAL SHORT-TERM OBLIGATIONS (COST $510) $ 510
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONVERTIBLE BONDS 2.6%
- -----------------------------------------------------------------------------
Face Value
Amount (000s)
----------- -----------
APP Finance (VII) Mauritius Limited $29,000,000 $ 21,269
3.50% 04/30/03
Cephalon, Inc. # 10,000,000 10,000
11.00% 01/31/02
Hutchinson Technology Incorporated + 21,600,000 20,574
6.00% 03/15/05
PETsMART, Inc. + 46,000,000 37,260
6.75% 11/01/04 -----------
- -----------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS (COST $103,554) $ 89,103
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
CONTRACTS 0.7%
- -----------------------------------------------------------------------------
Value
Contracts (000s)
---------- ------------
PURCHASED OPTIONS
Currency options, strike price, expiration:
British Pounds, call @ 1.57, 06/28/00 78,000,000 $ 1,472
Equity options, strike price, expiration:
Cendant Corporation, call @ 15, 01/20/01 5,000 6,625
Cendant Corporation, call @ 20, 01/20/01 7,000 6,562
Cendant Corporation, call @ 20, 02/19/00 17,500 12,250
SOLD OPTION
Currency options, strike price, expiration:
British Pounds, call @ 1.655, 06/28/00 (78,000,000) (2,266)
- -----------------------------------------------------------------------------
TOTAL CONTRACTS (COST $7,170) $ 24,643
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
TOTAL INVESTMENTS 100% $ 3,459,437
(COST $1,888,741)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
LEGEND
% Represents percentage of total portfolio investments
^ Foreign Denominated Security:
AUD - Australian Dollar
EUR - Euro
GBP - British Pound
ILS - Israeli Shekel
KRW - South Korean Won
THB - Thai Baht
+ Affiliated Company (See Note 7 of Notes to Financial Statements)
# Restricted security - not registered under the Securities Act of 1933
(See Note 8 of Notes to Financial Statements)
* Non-income producing during the year
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
(EXCEPT PER SHARE AMOUNT)
- --------------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------
Investments in securities at value (including
repurchase agreements of $510) (cost $1,888,741)
(See accompanying schedule) $ 3,459,437
Cash and cash equivalents 350
Receivable for investments sold 41,227
Receivable for Fund shares sold 926
Dividends and interest receivable 1,682
Other receivables 287
Shares of Investment Fund, at amortized cost,
held as collateral for securities loaned 766,153
-----------
- --------------------------------------------------------------------------------
TOTAL ASSETS 4,270,062
- --------------------------------------------------------------------------------
LIABILITIES
Demand loan payable to bank (Note 9) 10,032
Payable for investments purchased 4,161
Payable for Fund shares redeemed 12,166
Payable to Investment Advisor 519
Other payables and accrued expenses 1,156
Payable upon return of securities loaned (Note 6) 766,153
-----------
TOTAL LIABILITIES 794,187
- --------------------------------------------------------------------------------
NET ASSETS $ 3,475,875
- --------------------------------------------------------------------------------
NET ASSETS CONSIST OF:
Paid in capital $ 1,841,309
Accumulated net investment loss (232,336)
Accumulated undistributed net realized gain
on investments and foreign currency transactions 296,207
Net unrealized appreciation on investments and assets and
liabilities in foreign currencies 1,570,695
-----------
NET ASSETS, FOR 584,373 SHARES OUTSTANDING $ 3,475,875
===========
NET ASSET VALUE PER SHARE
(based on 584,373 shares outstanding, 2,000,000
shares authorized with $.10 per share par value) $ 5.95
===========
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------
INVESTMENT INCOME
- --------------------------------------------------------------------------------
Dividends, net of $43 foreign taxes withheld
(including $1,628 received from affiliated issuers) $ 4,447
Interest (including income on securities
loaned of $2,071) 18,299
Other (Note 3) 3,193
-----------
- --------------------------------------------------------------------------------
TOTAL INCOME 25,939
- --------------------------------------------------------------------------------
EXPENSES
Investment advisory fee (Note 3) 50,897
Distribution fee (Note 3) 12,215
Shareholder servicing fees 3,937
Service fees (Note 4) 1,025
Dividends on securities sold short 561
Audit fees 459
Custodian fees and expenses 438
Interest expense (Note 9) 437
Printing and mailing expenses 294
Non-interested directors' fees and expenses 239
Legal fees 160
Registration fees 50
Miscellaneous expenses 623
-----------
Total expenses before reimbursement 71,335
Expense reimbursement by Investment Advisor (Note 3) (5,168)
-----------
NET EXPENSES 66,167
- --------------------------------------------------------------------------------
NET INVESTMENT LOSS $ (40,228)
- --------------------------------------------------------------------------------
Realized and Unrealized Gain
Net realized gain on:
Investment securities $ 448,454
(including net realized loss of $86,589 on sales of
investments in affiliated issuers (Note 7))
Foreign currency transactions 1,494
-----------
449,948
-----------
Changes in net unrealized (depreciation) on:
Investment securities 231,030
Assets and liabilities (2)
-----------
231,028
-----------
Net gain 680,976
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 640,748
===========
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1999 AND 1998
AMOUNTS IN THOUSANDS
--------------------------
1999 1998
----------- -----------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment loss $ (40,228) $ (35,087)
Net realized gain 449,948 614,899
Change in net unrealized appreciation 231,028 (574,200)
----------- -----------
Net increase in net assets resulting
from operations 640,748 5,612
----------- -----------
Distributions to shareholders
From net investment income -- --
From net realized gain (512,373) (499,865)
----------- -----------
Total distributions (512,373) (499,865)
----------- -----------
Share transactions
Net proceeds from sales of shares 230,601 728,424
Reinvestment of distributions 496,927 483,873
Cost of shares redeemed (2,001,046) (2,105,187)
----------- -----------
Net decrease in net assets resulting
from share transactions (1,273,518) (892,890)
----------- -----------
Total decrease in net assets (1,145,143) (1,387,143)
NET ASSETS
Beginning of year 4,621,018 6,008,161
----------- -----------
End of year $ 3,475,875 $ 4,621,018
=========== ===========
OTHER INFORMATION
Shares:
Sold 43,175 116,161
Issued in reinvestment of distributions 102,246 93,955
Redeemed (374,248) (339,616)
----------- -----------
Net decrease (228,827) (129,500)
=========== ===========
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1 SIGNIFICANT ACCOUNTING POLICIES
The Kaufmann Fund, Inc. is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Fund is
incorporated in Maryland. The financial statements have been prepared in
conformity with generally accepted accounting principles which permit
management to make certain estimates and assumptions. The following
summarizes the significant accounting policies of the Fund:
SECURITY VALUATION
Securities for which exchange quotations are readily available are valued
at the last sale price, or if none, at the closing bid price. Securities,
including restricted securities, for which exchange quotations are not
readily available, are valued primarily using dealer-supplied valuations or
at fair value, as determined in good faith under consistently applied
procedures established by the Board of Directors. Short-term securities
with remaining maturities of sixty days or less, for which quotations are
not readily available, are valued at amortized cost or original cost plus
interest, which approximate current value.
FOREIGN CURRENCY TRANSLATION
The accounting records of the Fund are maintained in U.S. dollars.
Investment securities and other assets and liabilities denominated in a
foreign currency are translated into U.S. dollars at the prevailing
exchange rates at year end. Income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions. Purchases and sales of securities are
translated into U.S. dollars at the contractual currency exchange rates
established at the time of each trade.
Net realized gains and losses on foreign currency transactions represent
net gains and losses from sales and maturities of forward currency
contracts, dispositions of foreign currencies, and the difference between
the amount of accrued net investment income and the U.S. dollar amount
actually received. The effects of changes in foreign currency exchange
rates on investments in securities are included in net realized and
unrealized gain or loss on investment securities.
INCOME TAXES
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes substantially all of its taxable income for its
fiscal year. Accordingly, no provision for Federal income taxes is
required.
INVESTMENT INCOME
Dividend income is recorded on ex-dividend date. Non-cash dividends
included in dividend income, if any, are recorded at the fair market value
of the securities received. Interest income is accrued as earned.
Investment income is recorded net of foreign taxes withheld when recovery
of such taxes is uncertain.
SECURITY TRANSACTIONS
Security transactions are recorded on trade date, which is the date the
order to buy or sell is executed. Gains and losses on securities sold are
determined on the basis of identified cost.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions are recorded on ex-dividend date.
Income and capital gain distributions are determined in accordance with
income tax regulations, which may differ from generally accepted accounting
principles.
Permanent book and tax differences, relating to shareholder distributions,
may result in reclassifications to paid-in capital and may affect the
per-share allocation between net investment income and realized and
unrealized gain/loss. Undistributed net investment income and accumulated
undistributed net realized gain/loss on investments and foreign currency
transactions may include temporary book and tax differences, which reverse
in subsequent periods. Any taxable income or gain remaining at fiscal year
end is distributed the following year.
2 OPERATING POLICIES
FOREIGN CURRENCY CONTRACTS
The Fund utilizes foreign currency contracts to facilitate transactions in
foreign securities. Losses may arise from changes in the value of the
foreign currency, or if counter parties do not perform under the contract
terms. The U.S. dollar value of foreign currency contracts is determined
using contractual currency exchange rates established at the time of each
trade. The cost of the foreign currency contracts is included in the cost
basis of the associated investment.
REPURCHASE AGREEMENTS
The Fund, through its custodian, takes possession through the Federal
Reserve Book Entry System, of the collateral pledged for investments in
repurchase agreements. The underlying U.S. Treasury or Federal Agency
Securities are valued daily on a mark-to-market basis to ensure that the
value, including accrued interest, is at least equal to the repurchase
price. In the event of default of the obligation to repurchase, liquidation
and/or retention of the collateral may be subject to legal proceedings.
SHORT SALES
Short sales are transactions in which the Fund sells a security it does not
own, in anticipation of a decline in the market value of that security. To
complete such a transaction, the Fund must borrow the security to deliver
to the buyer upon the short sale; the Fund is then obligated to replace the
borrowed security by purchasing it in the open market at some later date.
The Fund will incur a loss if the market price of the security increases
between the date of the short sale and the date on which the borrowed
security is replaced. The Fund will realize a gain if the security declines
in value between those dates. All short sales must be fully collateralized.
The Fund maintains the collateral in a segregated account with its
custodian. For the year ended December 31, 1999, the cost of securities
purchased to cover short sales and the proceeds from securities sold short
were $370,820,433 and $132,855,321, respectively. At December 31, 1999,
there were no securities sold short.
3 INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE
Edgemont Asset Management Corporation (Edgemont) is the investment advisor
of the Fund. Certain officers and directors of the Fund are affiliated with
Edgemont. Edgemont's investment advisory fee is calculated on an annual
basis at 1.50% of the Fund's average net assets. For the year ended
December 31, 1999, the Fund incurred investment advisory fees of
$50,896,955. Edgemont has voluntarily agreed to reimburse the Fund for
expenses, to the extent of the investment advisory fee, if the Fund's
annual expenses (other than brokerage commissions, capital items, interest,
taxes, extraordinary items and other excludable items) are in excess of
$650,000. A reimbursement of $5,168,466 was made for the year ended
December 31, 1999. Edgemont has voluntarily agreed to continue to provide
this reimbursement in the future.
DISTRIBUTION FEE
The Fund has adopted a Plan pursuant to Rule 12b-1 under the 1940 Act
whereby the Fund or Edgemont may finance activities which are primarily
intended to result in the sale of the Fund's shares, including, but not
limited to: advertising, printing of prospectuses and reports for
prospective shareholders, preparation and distribution of advertising
materials and sales literature, and payments to dealers and shareholder
servicing agents who enter into agreements with the Fund or Edgemont. The
Fund or Edgemont may incur such distribution expenses at the rate of 0.75%
per annum on the Fund's average net assets. For the year ended December 31,
1999, distribution expenses of $12,215,138 were incurred by the Fund,
equivalent to 0.36% per annum of the Fund's average net assets.
REDEMPTION FEE
The Fund imposes a redemption fee of 0.2% on the redemption price of the
Fund's capital stock shares redeemed, if such shares were purchased after
February 1, 1985. The redemption fee is applied to the Fund's expenses for
providing redemption services, including, but not limited to: transfer
agent fees, postage, printing, telephone and related employment costs. Any
excess fee proceeds are added to the Fund's assets. For the year ended
December 31 , 1999, redemption fees of $1,634,869 were allocated to cover
the cost of redemptions. Excess fee proceeds of $2,181,913 were added to
the Fund's assets.
BROKERAGE COMMISSIONS
The Fund places a portion of its portfolio transactions with Bowling Green
Securities, Inc. During 1999, $50,100 of brokerage commissions were paid to
Bowling Green. Certain officers and directors of the Fund are affiliated
with Bowling Green.
4 SERVICE FEES
The Fund has an Authorization Agreement for the payment of service fees,
not to exceed 0.25% per annum of the Fund's average net assets, to
broker-dealers that provide liaison services to investors, such as
responding to client inquiries and providing information on investments.
For the year ended December 31, 1999, service fees of $1,024,860 were
incurred by the Fund. Effective May 1999, Edgemont has agreed to pay for
these services via the distribution fee.
5 INVESTMENTS
PURCHASES AND SALES OF INVESTMENTS
Purchases and sales of securities (excluding short-term investments and
securities sold short) aggregated $2,556,151,572 and $3,120,162,718,
respectively.
PORTFOLIO TURNOVER RATE
Portfolio turnover rate, which is calculated on the lesser of the costs of
investments purchased or the proceeds from investments sold (excluding
short-term investments and securities sold short) measured as a percentage
of the Fund's average monthly portfolio, was 78% for the year ended
December 31, 1999.
TAX BASIS OF INVESTMENTS
As of December 31, 1999, the aggregate cost, for Federal income tax
purposes, of investment securities was $1,888,740,731. Accumulated net
unrealized appreciation aggregated $1,570,696,057, of which $1,685,474,778
related to appreciated investment securities and $114,778,721 related to
depreciated investment securities.
6 PORTFOLIO SECURITIES LOANED
The Fund lends securities to certain brokers who pay the Fund negotiated
lenders' fees. These fees, less costs to administer the program, are
included in interest income and amounted to $2,071,384 for the year ended
December 31, 1999. The Fund receives U.S. Treasury obligations and/or cash
as collateral against the loaned securities in an amount at least equal to
102% of the market value of the loaned securities at the inception of each
loan. This collateral must be maintained at not less than 100% of the
market value of the loaned securities during the period of the loan. At
December 31, 1999, the value of the securities loaned and the value of
collateral was $750,070,040 and $766,152,464, respectively.
7 TRANSACTIONS WITH AFFILIATED COMPANIES
An affiliated company is a company in which the Fund has ownership of at
least 5% of the voting shares. Transactions with companies which are or
were affiliates are as follows:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
------------------------------------------------------------
PURCHASE SALES DIVIDEND
AFFILIATES COST COST INCOME VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aastrom Biosciences, Inc. * $ - $ 741 $ - $ 1,172
Aastrom Biosciences, Inc. Pfd. (restricted) * - - - 74
Alexion Pharmaceuticals, Inc. * - - - 25,224
Alpha Industries, Inc. * 20,148 30,939 - 36,388
Ambassadors International, Inc. * - 11,570 - -
ArQule, Inc. * - 1,946 - 20,500
Aurora Biosciences Corporation * - 11,456 - 45,747
Barnett, Inc. * - 9,702 - -
Billing Concepts Corp. * - 9,611 - 4,863
Bionx Implants, Inc. * - 1,389 - 2,344
Boron, LePore & Assoc. Inc. * 10,798 7,908 - -
Carey International, Inc. * - 640 - 12,675
Central Garden and Pet Company * - 19,785 - -
CINAR Corporation * 10,723 - - 39,200
Coast Dental Services, Inc. * - 4,713 - -
CompDent Corporation (restricted) * - 14,375 - 122
CompDent Corporation (Pfd.) (restricted) * - - - 2,832
Cunningham Graphics International, Inc. * - 2,908 - 2,369
Diagnostic Products Corporation - 18,757 181 -
Dispatch Management Services Corp. * 724 - - 4,170
Federal Agricultural Mortgage Corp. * - - - 10,477
Hanger Orthopedic Group, Inc. * 9,490 3,922 - 5,842
Hastings Entertainment, Inc. * 12 7,648 - -
Headlands Mortgage Company * - 21,488 - -
Health Management Systems, Inc. * - 5,937 - -
Healthcare Recoveries, Inc. * - 2,520 - 5,061
Hutchinson Technology Inc., 6%, 3/15/05 - 28,621 - 20,574
INSpire Insurance Solutions, Inc. * 9,281 12,258 - -
International Telecommunication
Data Sys. Inc. * 5,118 13,896 - -
J.D. Wetherspoon plc (GBP) 3,724 3,536 718 122,774
JLM Industries, Inc. * - 1,850 - -
Lincare Holdings, Inc. * 3,289 18,892 - 162,472
MAPICS, Inc. * 2,493 6,998 - 5,619
Marquee Group Inc., The * - 14,338 - -
Medstone International, Inc. * - 3,786 - -
Nuco2 Inc. * - 3,484 - -
Orthofix International N.V. * - 2,398 - 11,835
Peak Trends Trust - 5,618 708 -
PETsMART, Inc. * 6,125 9,910 - 34,960
PETsMART, Inc., 6.75%, 11/01/04 - - - 37,260
Philadelphia Consolidated Holding Corp. * 6,861 894 - 20,162
PSS World Medical, Inc. * 3,018 43,667 - 10,213
RTW, Inc. * 303 900 - 6,728
Sheridan Healthcare, Inc. * - 8,322 - -
Shopko Stores Inc. * 27,905 34,597 - -
Skechers U.S.A., Inc. * 8,250 5,797 - -
Sterile Recoveries, Inc. * - 6,527 - -
STERIS Corporation * - 126,190 - -
Systemax Inc. * 663 17,183 - 7,545
Transaction Network Services, Inc. * 1,657 67,845 - -
TriPath Imaging, Inc. * - 5,950 - 1,065
United Payors & United Providers, Inc. * 21,320 12,297 - 5,338
Universal Standard Healthcare, Inc. * - 96 - -
US Oncology, Inc. * 19,671 4,860 - 23,981
Virginia Gas Company 560 - 21 1,853
ViroPharma Incorporated * - 6,084 - -
Wilmar Industries, Inc. * - 16,186 - -
ZOLL Medical Corporation * - 8,341 - 27,686
-------- -------- ------ --------
$172,133 $679,276 $1,628 $719,125
======== ======== ====== ========
* Non-income producing during the year.
</TABLE>
8 RESTRICTED SECURITIES
The Fund may not invest more than 10% of its net assets in securities which
are subject to legal or contractual restrictions on resale. At December 31,
1999, the Fund owned the following restricted securities (constituting 3.5%
of net assets) which may not be publicly sold without registration under
the Securities Act of 1933. The Fund does not have the right to demand that
such securities be registered. The value of these securities is determined
by valuations supplied by pricing services or brokers, or if not available,
in good faith by or at the direction of the Board of Directors. Certain of
these securities may be offered and sold to "qualified institutional
buyers" under Rule 144A of the 1933 Act.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
DATE OF SHARE/PAR ----------------------
DESCRIPTION ACQUISITION AMOUNT COST VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Aastrom Biosciences, Inc. - Preferred 02/17/98 6,457 $ -- $ 4
04/15/98 26,316 -- 14
10/02/98 102,289 -- 56
----------- ------- --------
135,062 -- 74
Amira Medical Series D - Preferred 04/12/99 1,000,000 5,500 5,500
Amira Medical Series A - Preferred 04/12/99 250,000 1,375 1,375
Aradigm Corporation 03/10/99 666,667 7,000 5,700
BreezeCom Ltd. (ILS) 11/05/99 278,788 2,300 2,300
Cephalon, Inc. Convertible Bond 03/01/99 10,000,000 10,000 10,000
Cephalon, Inc. Class B Warrants 03/01/99 160,000 -- 3,917
Cephalon, Inc. Class A Warrants 03/01/99 480,000 -- 11,752
CompDent Corporation 05/24/95 60,000 36 30
04/21/97 75,000 46 37
04/22/97 65,000 40 32
06/30/99 48,612 -- 23
----------- ------- --------
248,612 122 122
CompDent Corporation - Preferred 05/24/95 855 834 834
04/21/97 1,069 1,060 1,060
04/22/97 927 938 938
----------- ------- --------
2,851 2,832 2,832
Endocardial Solutions, Inc. 07/09/99 444,445 4,000 3,889
ENDOcare, Inc. 01/24/97 946,100 3,311 7,983
04/16/98 750,000 2,625 6,328
04/24/98 16,900 60 142
----------- ------- --------
1,713,000 5,996 14,453
Genomica Corporation
Series B - Preferred 02/17/99 9,722,222 7,000 7,000
GreenField Technology Ventures
Fund I, L.P. 06/15/98 1 88 100
GreenField Technology Ventures
Fund II, L.P. 07/20/99 1 500 500
Hardman Resources NL (AUD) 04/08/93 100,000 35 8
04/13/93 100,000 35 8
04/15/93 50,000 18 4
04/23/93 100,000 34 8
08/11/93 100,000 31 8
02/06/95 112,500 4 10
----------- ------- --------
562,500 157 46
Illuminet Holdings, Inc. 02/04/98 20,100 358 3,288
IntraBiotics Pharmaceuticals, Inc.
Series G - Pfd. 11/23/98 1,500,000 4,502 4,502
LJL Biosystems, Inc. 01/22/99 857,143 3,000 6,075
Latin Healthcare Fund, L.P. 07/15/97 1 2,080 2,080
06/03/99 -- 3,000 3,000
----------- ------- --------
1 5,080 5,080
PacificHealth Laboratories, Inc. 08/09/96 140,000 525 315
P-Com, Inc. 06/22/99 2,516,990 10,000 10,000
Panavision Inc. 06/05/98 46,363 767 3
Peachtree Medichem Partners, LLC 06/07/99 30,078 1,461 1,463
Peptech Limited (AUD) 07/19/93 31,250 76 --
PixTech, Inc. 03/31/98 1,000,000 4,022 2,250
PixTech, Inc. Convertible Preferred 12/24/98 266,297 6,020 6,020
Sanarus Medical Inc.
Series A - Preferred 11/16/99 666,667 1,000 1,000
SensAble Technologies, Inc. 12/23/97 1,333,334 2,064 2,064
ThermoGenesis Corp. 12/31/97 800,000 2,000 1,900
ThermoGenesis Corp. - Warrants 01/27/98 80,000 -- --
ThermoGenesis Corp.
Series A - Conv. Pfd. 12/29/98 576,000 3,600 3,600
Titan Pharmaceuticals, Inc. 03/28/95 46,131 100 --
Trex Medical Corporation 11/15/95 20,000 205 56
06/24/96 2,000 28 6
----------- ------- --------
22,000 233 62
Urogen Corp. 01/10/96 66,500 3 --
Western Growth Capital
Partners I, L.L.L.P 12/31/97 52,500 166 165
World Access, Inc. 12/17/99 300,000 5,280 5,280
Xenometrix, Inc. 07/10/92 6,619 50 --
------- --------
$97,177 $122,624
======= ========
</TABLE>
9 LINE OF CREDIT
The Fund has a $400,000,000 committed secured leverage line of credit. The
Fund is required to pledge assets equivalent to its borrowings under the
line of credit. The Fund incurs a commitment fee on the unused portion of
the line of credit. Borrowings are charged interest at 0.50% over the
current overnight Federal Funds Rate. At December 31, 1999 the annual
interest rate on outstanding borrowings was 6.0%. No compensating balances
are required.
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS AND
BOARD OF DIRECTORS OF
THE KAUFMANN FUND, INC.
We have audited the accompanying statement of assets and liabilities of The
Kaufmann Fund, Inc., including the schedule of investments, as of December
31, 1999, and the related statement of operations for the year then ended,
the statement of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1999, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Kaufmann Fund, Inc. as of December 31, 1999, the results of its operations
for the year then ended, the changes in its net assets for each of the two
years in the period then ended, and the financial highlights for each of the
five years in the period then ended, in conformity with generally accepted
accounting principles.
Abington, Pennsylvania SANVILLE & COMPANY
January 27, 2000 Certified Public Accountants
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
NOTES
- --------------------------------------------------------------------------------
<PAGE>
THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
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>
INVESTMENT ADVISOR
Edgemont Asset Management Corporation
140 East 45th Street, 43rd Floor
New York, New York 10017
(212) 661-2443
- -------------------------------------------------------------------------------
CUSTODIAN
State Street Bank and Trust Company
P.O. Box 1713
Boston, Massachusetts 02105
- -------------------------------------------------------------------------------
TRANSFER AGENT
Boston Financial Data Services Inc.
P.O. Box 8331
Boston, Massachusetts 02266
(800) 261-0555
- -------------------------------------------------------------------------------
LEGAL COUNSEL
Pepper Hamilton, LLP
3000 Two Logan Square
Philadelphia, PA 19103
- -------------------------------------------------------------------------------
INDEPENDENT AUDITORS
Sanville & Company
1514 Old York Road
Abington, Pennsylvania 19001
- -------------------------------------------------------------------------------
This annual report must be accompanied with or preceded by the Fund's current
prospectus.
THE
KAUFMANN
FUND,
INC.
[graphic omitted]
ANNUAL REPORT
- -------------------------------------------------------------------------------
DECEMBER 31, 1999
