-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FgoB0NK6OGnS3h3Ev/A0zuj61P9jZbydg42YsuE1Ix6QRnu1MK7zsrOtCX1R0C5m eGDkXPxeOVn5auL0ozbLhw== 0000950156-00-000216.txt : 20000412 0000950156-00-000216.hdr.sgml : 20000412 ACCESSION NUMBER: 0000950156-00-000216 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000411 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KAUFMANN FUND INC CENTRAL INDEX KEY: 0000054771 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 132605091 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-01586 FILM NUMBER: 598165 BUSINESS ADDRESS: STREET 1: 140 E 45TH ST 43RD FL STREET 2: STE 2624 CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2129220123 MAIL ADDRESS: STREET 1: 140 EAST 45TH ST STREET 2: 43RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: PAW GROWTH FUND INC DATE OF NAME CHANGE: 19701022 FORMER COMPANY: FORMER CONFORMED NAME: PHILIPS APPEL & WALDEN FUND INC DATE OF NAME CHANGE: 19680711 N-30D 1 KAUFMANN FUND - 12-31-99 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 ------------------------------------------ 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 THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR - --------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, ---------------------------------------------- 1999 1998 1997 1996 1995 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.
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. 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. 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. 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. 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:
AMOUNTS IN THOUSANDS ------------------------------------------------------------ PURCHASE SALES DIVIDEND AFFILIATES COST COST INCOME VALUE - -------------------------------------------------------------------------------------------------------------- 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.
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.
AMOUNTS IN THOUSANDS DATE OF SHARE/PAR ---------------------- DESCRIPTION ACQUISITION AMOUNT COST VALUE - ------------------------------------------------------------------------------------------------------ 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 ======= ========
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. 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 THE KAUFMANN FUND, INC. ANNUAL REPORT - DECEMBER 31, 1999 - -------------------------------------------------------------------------------- NOTES - -------------------------------------------------------------------------------- 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. 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 -----END PRIVACY-ENHANCED MESSAGE-----