Filed with the Securities and Exchange Commission on March 1, 1999
1933 Act Registration File No. 333-03147
1940 Act File No. 811-07595
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 4 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 4 |X|
THE INTERNET FUND
(Exact Name of Registrant as Specified in Charter)
344 Van Buren Street, North Babylon, New York 11704
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (516) 893-4200
With copy to:
Margaret B. Doyle Elaine E. Richards, Esquire
344 Van Buren Street Firstar Mutual Funds Services, LLC
North Babylon, NY 11704 615 East Michigan Street, 2nd Floor
(Name and Address of Agent for Service) Milwaukee, Wisconsin 53202
It is proposed that this filing will become effective
[ ] immediately upon filing pursuant to paragraph (b)
on pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on April 30, 1999 pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on___________pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[X] This post-effective amendment designates a new effective date
for a previously filed post-effective amendment.
<PAGE>
The Internet
Fund, Inc.
Logo
Prospectus
April 30, 1999
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of the prospectus. Any representation to
the contrary is a criminal offense.
-1-
<PAGE>
TABLE OF CONTENTS
Fund Summary 3
Past Performance Information 4
Fund Expenses 5
Investment Objectives and Strategies 6
Management of the Fund 7
Distribution of Shares 7
Pricing of Fund Shares 8
How To Purchase Shares 8
How To Redeem Shares 10
Distribution and Taxes 11
Financial Highlights 12
Year 2000 Issue 13
-2-
<PAGE>
THE INTERNET FUND, INC.
Fund Summary
- -------------------------------------------------------------------------------
Investment Objectives
The Internet Fund's primary investment objective is long-term growth of capital
- - a goal it seeks by investing primarily in the common stocks and securities
convertible into common stocks of domestic and foreign companies engaged in the
Internet and Internet-related activities. The fund seeks to obtain current
income as a secondary objective.
Principal Investment Strategies
The fund's strategy to achieve its goal is to invest in companies that provide
products or services designed for the Internet. The fund's investment adviser
believes that the Internet offers unique investment opportunities because of its
ever-growing popularity among business and personal users alike. The Internet is
a collection of connected computers that allows commercial and professional
organizations, educational institutions, government agencies and consumers the
ability to communicate electronically, access and share information and conduct
business around the world. Keeping that in mind, the fund invests in common
stock and other securities of companies whose research and development efforts
with respect to Internet usage may result in higher stock values.
Principal Risk of Investing in the Fund
Investing in common stock has inherent risks, which could cause you to lose
money. The principal risks of investing in this fund are listed below and could
adversely affect the fund net asset value yield and total return.
Stock Market Risk: Stock mutual funds are subject to stock market risks
and significant fluctuations in value. If the stock market declines in value,
the fund is likely to decline in value.
Stock Selection Risk: The stocks selected by the investment adviser
may decline in value or not increase in value when the stock market in general
is rising.
Liquidity Risk: The investment adviser may not be able to sell stocks
at an optimal time or price.
Industry Risk: Mutual funds that invest in a particular industry carry
a risk that a group of related stocks will decline in price due to industry
specific development. Companies in the same or similar industries may share
common characteristics and are more likely to react to industry specific market
or economic developments.
Internet Specific Risks: Internet and Internet-related companies are
generally subject to the rate of change in technology, which is higher than
other industries. In addition, many products and services of companies engaged
in the Internet and Internet-related activities are also subject to relatively
high risks of rapid obsolescence caused by progressive scientific and
technological advances.
Management Risk: The investment adviser has no previous experience
managing a mutual fund.
Who May Want to Invest
This fund may be appropriate for people who:
wish to invest for a long term
want to diversify their portfolios
want to allocate some portion of their long-term investments to
aggressive equity investing
are willing to accept a high degree of volatility and risk in exchange
for the opportunity to realize greater financial gains in the future
Because the fund concentrates its investments in a single industry (i.e., the
Internet), its shares do not represent a complete investment program and the
value of the shares may fluctuate more than shares invested in a broader range
of industries.
-3-
<PAGE>
Past Performance Information
- --------------------------------------------------------------------------------
The bar chart and table shown below illustrate the variability of the fund's
returns. The bar chart indicates the risks of investing in the fund by showing
the changes in the fund's performance from year to year (on a calendar year
basis). The table shows how the fund's average annual returns compare with those
of the S&P 500 Index and the NASDAQ Composite Index both of which represent
broad measures of market performance. The fund's past performance is not
necessarily an indication of how the fund will perform in the future.
CHART
TOTAL RETURN AS OF 12/31
1997 1998
12.74% 196.05%
<TABLE>
- ------------------------------- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
Best Quarter: Q4 1998 83.43%
Worst Quarter: Q1 1997 (21.23)%
- ------------------------------- ----------------------------- ----------------------------- -----------------------------
</TABLE>
<TABLE>
Average Total Returns as of 12/31/98
- ------------------------------------------------------------- ------------------------ ----------------------------------
<S> <C> <C>
1 Year Since Inception
------- ---------------
The Internet Fund 196.05% 68.43%
S&P 500 Index(with dividends reinvested)1 28.58% 31.42%
NASDAQ Composite Index2 39.95% 31.33%
- ------------------------------------------------------------- ------------------------ ----------------------------------
</TABLE>
1 The S&P 500 Index is an unmanaged index created by Standard & Poor's
Corporation that is considered to represent U.S. stock market performance in
general and is not an investment product available for purchase. The fund
returns presented above include operating expenses (such as management fees,
transaction costs, etc.) that reduce returns, while the return of the S&P 500
Index does not. An individual who purchases an investment product which attempts
to mimic the performance of the S&P 500 Index will incur expenses such as
management fees, transaction costs, etc, that reduce returns.
2 The NASDAQ Composite Index is a broad - based capitalization - weighted
index of all NASDAQ stocks.
- -
-4-
<PAGE>
Fund Expenses
- --------------------------------------------------------------------------------
As an investor, you pay certain fees and expenses in connection with the fund.
These fees are described on the table below and further explained in the example
that follows.
Fee Table
<TABLE>
- --------------------------------------------------------- ---------
Shareholder Transaction Expenses
(fees paid directly from your investment)
- --------------------------------------------------------- ---------
<S> <C>
Maximum Sales Charge on Purchases None
(as a percentage of offering price)
Maximum Deferred Sales Charge None
Maximum Sales Charge on Reinvested Dividends None
Redemption Fee1 None
Exchange Fee IRA Trustee Fee $10 Annually None
- --------------------------------------------------------- ---------
Estimated Annual Operating Expenses
(expenses deducted from fund assets)
- --------------------------------------------------------- ---------
Management Fees 1.25%
Rule 12b-1 Fees None
Other Expenses 1.83%
Total Fund Operating Expenses 3.08%
</TABLE>
1 Although no sales loads or transaction fees are charged, you will be
assessed fees for outgoing wire transfers, returned checks and stop
payment orders.
Expense Example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes that:
1. You invest $10,000 in the fund for the time periods indicated and then redeem
all of your shares at the end of those periods, 2. Your investment has a 5%
return each year, and 3. The fund's operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<S> <C> <C> <C> <C>
1 Year 3 Years 5 Years 10 Years
$311 $951 $1,616 $3,392
</TABLE>
-5-
<PAGE>
Investment Objectives and Strategies
- --------------------------------------------------------------------------------
Investment Objectives
The fund's primary investment objective is long-term growth of capital --a goal
it seeks by investing primarily in common stocks and securities convertible into
common stocks of domestic companies engaged in the Internet and Internet-related
activities or services. Current income is a secondary objective.
Investment Strategies
Under normal circumstances, at least 80% of the fund's total assets will be
invested in the securities of companies engaged in Internet and Internet-related
activities. The fund's investment adviser believes that companies that provide
products or services designed for the Internet offer favorable investment
opportunities. The Internet is a global collection of connected computers that
allows commercial and professional organizations, educational institutions,
government agencies, and consumers to communicate electronically, access and
share information, and conduct business. Accordingly, the fund seeks to invest
in common stock and convertible securities of companies whose research and
development efforts, may result in higher stock values.
In addition to evaluating trends in corporate revenues, earnings and dividends,
the adviser measures the amount of capital a company currently expends on
research and development. The adviser believes that dollars invested in research
and development today frequently have significant bearing on future growth.
Portfolio securities generally will be selected from companies in the following
groups:
o Internet Access Providers: Companies that provide users with access to the
Internet.
o Software Developers: Companies that develop software tools to access the
Internet, facilitate information distribution and gathering, to secure
Internet-based transactions, etc.
o Hardware Manufactures: Companies that develop and manufacture communication
equipment, such as modems, switches and routers, used to access the
Internet, and those that develop and manufacture workstations and Personal
Communications Systems used to access the Internet and provide Internet
services.
o Content Developers: Companies that supply information and entertainment
content, such as games, music, and video, on the Internet.
o Publishing Companies: Companies that provide information about the
Internet through publication of books, magazines, and newspapers.
Temporary Investments
To respond to adverse market, economic, political or other conditions, the fund
may invest up to 100% of its assets in U.S. and foreign short-term money market
instruments. The fund may invest up to 35% of its assets in these securities to
maintain liquidity. Some of the short-term money instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and banker's acceptance
o U.S. government securities
o repurchase agreements
To the extent the fund engages in this temporary, defensive strategy, the fund
may not achieve its investment objective.
-6-
<PAGE>
The Statement of Additional Information contains more information about the fund
and the types of securities in which it may invest.
Management of the Fund
- --------------------------------------------------------------------------------
Investment Adviser
The fund's investment adviser is Kinetics Asset Management, Inc., 344 Van Buren
Street, North Babylon, New York, 11704. The management and affairs of the fund
are supervised by its Board of Directors whose name and general background
information appear in the Statement of Additional Information. The adviser
conducts investment research and supervision for the fund and is responsible for
the purchase and sale of securities for the funds portfolio. The adviser
receives an annual fee from the fund for its services of 1.25% of the fund's
average daily net assets.
Margaret B. Doyle is the president of Kinetics Asset Management, Inc. Ms. Doyle
has more than 29 years experience in a variety of professional and managerial
positions in education. Mr. Francis J. Alexander is the vice president of
Kinetics Asset Management, Inc. Mr. Alexander has more than 21 years of
investment experience managing portfolios.
Portfolio Managers
Ryan Jacob is the chief portfolio manager of the Internet Fund and is primarily
responsible for the day-to-day management of the fund's assets and securities.
He has been the portfolio manager for the fund since December of 1997. Mr.
Jacob, a graduate of Drexel University, has over 8 years of investment
management experience. Prior to managing the portfolio for The Internet Fund,
Mr. Jacobs was Director of Research for IPO Value Monitor, an investment related
newsletter. He also served as Managing Director for Horizon Asset Manager, as
well as Bankers Trust, Mellon Bank, and Shearson Lehman Hutton.
Francis J. Alexander is a portfolio manager of the fund. Mr. Alexander assists
Mr. Jacob in the day-to-day management of the fund's assets and securities. Mr.
Alexander has been a portfolio manger of the fund since its inception. Prior to
managing the fund, Mr. Alexander served as a portfolio manager for Alexander
Capital Management since 1980. Mr. Alexander received his Bachelor of Arts from
Notre Dame University and his Master of Business Administration from St. John's
University.
Fund Administrator, Fund Accounting and Transfer Agent
Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 serves as the fund's administrator, accountant and transfer
agent. As such, Firstar provides certain shareholder services and record
management services as well as acts as the fund's dividend paying agent.
Custodian
Firstar Bank Milwaukee, N.A, an affiliate of Firstar Mutual Fund Services, LLC
located in Milwaukee, Wisconsin acts as custodian of the fund's assets.
Distribution of Shares
- --------------------------------------------------------------------------------
The fund is a self-distributed fund, which means you may purchase shares
directly from the fund itself.
-7-
<PAGE>
Pricing of Fund Shares
- --------------------------------------------------------------------------------
Shares of the fund are sold at their net asset value per share ("NAV"), which is
determined by the fund as of the close of regular trading (generally 4:00 p.m.
eastern time on each day that the New York Stock Exchange is open for
unrestricted business. Purchase and redemption requests are priced at the next
NAV calculated after receipt and acceptance of a completed purchase or
redemption request. The NAV is determined by dividing the value of the fund's
securities, cash and other assets, minus all expenses and liabilities, by the
number of shares outstanding (assets-liabilities/# of shares = NAV). The NAV
takes into account the expenses and fees of the fund, including management,
distribution and shareholder servicing fees, which are accrued daily.
The fund's portfolio securities are valued each day at the last quoted sales
price on the securities principal exchange. If market quotations are not readily
available, securities will be valued at their fair market value as determined in
good faith, or in accordance with procedures approved by the Board of Trustees.
The fund may use independent pricing services to assist in calculating the NAV.
How To Purchase Shares
- --------------------------------------------------------------------------------
Shares of the fund may be purchased on any business day through authorized
investment dealers or directly from the fund's Distributor. Except for the fund
itself, only the investment dealers that have a sales agreement with the fund
are authorized to sell shares of the fund.
Shares of the fund are sold at net asset value, without a sales charge, and will
be credited to a stockholder's account at the net asset value next computed
after an order is received. The minimum initial investment for both Regular
Accounts and Individual Retirement Accounts is $1,000. The minimum subsequent
investment for both types of accounts is $100. The fund's management reserves
the right to reject any purchase order if, in its opinion, it is in the fund's
best interest to do so. A service fee of $25 will be deducted from your fund
account for any purchases that do not clear due to insufficient funds.
Purchase By Mail
To purchase fund shares by mail, simply complete and sign the enclosed New
Account Application Form and mail it, along with a check or money order made
payable to The Internet Fund, to:
The Internet Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
For Overnight or Express Mail, send to:
The Internet Fund
c/o Firstar Mutual Fund Services, LLC
615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
-8-
<PAGE>
Purchase By Wire
Before wiring any funds please call 1-888-FUND-WWW (386-3999) to notify the fund
that the wire is coming and to verify the proper wire instructions so that the
wire is properly applied when received. The fund is not responsible for delays
resulting from the banking or Federal Reserve wire system. Please use the
wiring instructions as follow:
o Wire to: Firstar Bank Milwaukee, N.A.
o ABA Number: 0750-00022
o Credit: Firstar Mutual Fund Service, LLC
o Account: 112-952-137
o Further Credit: The Internet Fund
(Shareholder Account Number)
(Shareholder Name/Account Registration)
Immediately send a completed New Account Application form to the fund at the
above address to have all accurate information recorded to your account.
Investing by Telephone
If you have completed the Telephone Purchase Authorization section of the New
Account Application Form, you may purchase additional shares by telephoning the
fund toll-free at (888) FUND-WWW. This option allows investors to move money
from their bank account to their fund account upon request. Only bank accounts
held at domestic institutions that are Automated Clearing House (ACH) members
may be used for telephone transactions.
The minimum telephone purchase is $100. You may not use telephone transactions
for your initial purchase of fund shares.
Automatic Investment Plan
Once an account has been established, you may purchase shares of the fund
through an Automatic Investment Plan. You can have money automatically
transferred from your checking, savings or bank money market account on a
weekly, bi-weekly, monthly, bi-monthly or quarterly basis.
o Minimum Initial Investment: $1,000
o Subsequent Automatic Investments: $ 100
To be eligible for this plan, your bank must be a domestic institution that is
an ACH member. The fund may modify or terminate this Plan at any time.
Subsequent Investments
You may add to your account at any time by purchasing shares by mail (minimum
$100), by telephone (minimum $100), or by wire (minimum $1,000). You must call
to notify the fund (1-888-FUND-WWW) before wiring. A remittance form, which is
attached to your individual account statement, should accompany any investments
made through the mail. All purchase requests must include your shareholder
account number.
Individual Retirement Accounts
You may invest in the fund by establishing a tax-sheltered individual retirement
account. The fund offers Traditional IRA, Roth IRA, and Educational IRA. For
additional information on IRA options, please call 1-800-FUND-WWW.
-9-
<PAGE>
How To Redeem Shares
- --------------------------------------------------------------------------------
In General
You may redeem part or all of your fund shares on any business day that the fund
calculates NAV. To redeem shares, you must contact the fund either by mail or by
phone to place a redemption order. Redemption orders for $50,000 or more must be
in writing. The fund will normally mail the redeemed proceeds the next business
day and, in any event, no later than seven days after the receipt of a
redemption request in good order. Note, however, that when a purchase order has
been made by check, the fund may hold payment of the redemption proceeds until
it is satisfied that the check has cleared. This may take up to 12 days.
Redemption requests will be sent to the address of record. If you request to
have your redemption proceeds sent to an address other than the address of
record, or if the address of record has been changed within 15 days of the
redemption request, you must put the request in writing and have your signature
guaranteed. Signature guarantees can be obtained from banks and securities
dealers, but not from a notary public. The fund is not responsible for interest
lost on redemption amounts due to lost or misdirected mail.
Written Redemption
In most cases, you may provide an unconditional written request to the fund to
redeem your shares at the current NAV. Redemption requests in writing should be
sent to the Transfer Agent at:
The Internet Fund
Firstar Mutual Fund Services, LLC
PO Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail requests should be forwarded to:
The Internet Fund
Firstar Mutual Fund Service, LLC
615 E. Michigan Street, 3rd Floor
Milwaukee, WI 53202
Requests for redemption must
o indicate the name of the fund
o be signed exactly as the shares are registered, including the signature of
each owner
o specify the number of shares or dollar amount to be redeemed
o indicate your account registration number, and
o include the investor's social security number or tax identification number
Telephone Redemption
If you are set up to perform telephone transactions (either through your New
Account Application or by subsequent arrangement in writing with the fund) you
may redeem shares in any amount up to $50,000, but not less than $100 by
instructing the fund by phone at 1-888-FUND-WWW. A signature guarantee is
required of all shareholders in order to qualify for or to change telephone
redemption privileges.
Note: Neither the fund nor any of its service contractors will be liable for any
loss or expense in acting upon instructions that are reasonably believed to be
genuine. To confirm that all telephone instructions are genuine, the fund will
use reasonable procedures, such as requesting:
o That a shareholder correctly state his or her fund account number,
o The name in which his or her account is registered;
o The social security or tax identification number under which the account is
registered,
o Address of the account holder, as stated in the New Account Application.
-10-
<PAGE>
Wire Redemption
Wire transfers may be arranged to redeem shares. However, the transfer agent
charges a $12 fee per wire redemption against your account. The minimum wire
redemption is $1,000.
Systematic Withdrawal Plan
If you own shares with a value of $10,000 or more, you may participate in the
Systematic Withdrawal Plan. The Systematic Withdrawal Plan allows you to make
automatic withdrawals from your account at regular intervals. Funds will be
transferred from your fund account to the account you chose at the interval you
select on the New Account Application form. If you expect to purchase additional
fund shares, it may not be to your advantage to participate in the Systematic
Withdrawal Plan because of the possible adverse tax consequences of making
contemporaneous purchases and redemptions.
The Fund's Right to Redeem an Account
The fund reserves the right to redeem the shares of any shareholder whose
account balance is less than $500, other than as a result of a decline in the
value per share of the fund or if the shareholder is an active participant in
the AutoInvest Plan. The fund will provide a shareholder a 30-day written notice
prior to redeeming the account.
IRA Redemption
If you are an IRA shareholder, you must indicate on your redemption request
whether or not to withhold federal income tax. Requests that do not indicate a
preference will be subject to withholding.
Distribution and Taxes
- --------------------------------------------------------------------------------
Distributions
Distributions (whether treated for tax purposes as ordinary income or long-term
capital gains) to stockholders of the fund are paid in additional shares of the
fund, with no sales charge, based on the fund's net asset value as of the close
of business on the record date for such distributions. However, you may elect on
the application form to receive distributions as follows:
Option 1: To receive income dividends in cash and capital gain distributions in
additional fund shares, or
Option 2: To receive all income dividends and capital gain distributions in
cash.
The fund intends to pay any dividends from investment company taxable income and
distributions representing capital gain at least annually, usually in November.
The fund will advise each stockholder annually of the amounts of dividends from
investment company taxable income and of net capital gain distributions
reinvested or paid in cash to the stockholder during the calendar year.
If you select Option 1 or Option 2 and the U.S. Postal Service cannot deliver
your checks, or if your check remains uncashed for six months, your distribution
check will reinvested in your account at the then current net asset value and
your election will be converted to the purchase of additional shares.
Taxes
The fund intends to continue to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In any taxable year in which the fund so qualifies and
distributes at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and the excess of realized net
short-term capital gain over realized net long-term capital loss), the fund
generally will be relieved of Federal income tax on its investment company
taxable income and net capital gain (the excess of realized net long-term
capital gain over realized net short-term capital loss) distributed to
stockholders. Amounts not distributed on a timely basis in accordance with a
calendar distribution requirement are also subject to a nondeductible 4% excise
tax. To prevent application of the excise tax, the fund intends to make its
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by the fund in October, November, or December of that year to
stockholders of record on a date in such a month and paid by the fund during
January of the following calendar year. Such distributions will be taxable to
stockholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
-11-
<PAGE>
Distributions from investment company taxable income are taxable to stockholders
as ordinary income. Distributions of net capital gains designated by the fund as
capital gains dividends are taxable as long-term capital gains regardless of the
length of time a stockholder may have held shares of the fund. The tax treatment
of distributions treated as ordinary income or capital gains will be the same
whether the stockholder reinvests the distributions in additional shares or
elects to receive them in cash. Stockholders will be notified each year of the
amounts and nature of dividends and distributions, including the amount (if any)
for that year that has been designated as capital gains distributions. Investors
should consult their tax advisers for specific information on the tax
consequences of particular types of distributions.
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights table set forth below is intended to help you
understand the fund's financial performance for the fund's period of operations.
Most of the information reflects financial results with respect to a single fund
share. The total returns in the tables represent the rates that an investor
would have earned (or lost) on an investment in the fund (assuming reinvestment
of all dividends and distributions). This information has been audited by
Lilling & Company LLP whose report, along with the fund's financial statements
that are included in the fund's annual report, which is available upon request.
<TABLE>
<CAPTION>
For the period
For the year ended For the year ended October 21, 1996(1)
December 31, 1998 December 31, 1997 through December 31, 1996
-------------------- ---------------------- ---------------------------
<S> <C> <C> <C>
Net asset value, beginning of period $5.31 $4.71 $5.00
- -------------------------------------------------- -------------------- ---------------------- ---------------------------
Net investment income (loss) (0.08) 0.01 0.02
Net realized and unrealized gain (loss) on 10.50 0.59 (0.31)
----- ---- ------
investments
Total from investment operations 10.42 0.60 (0.29)
Dividends from net investment income, short-term (0.01) ___ ___
capital gains and 1997 net unrealized gain
- -------------------------------------------------- -------------------- ---------------------- ---------------------------
Net asset value, end of period $15.72 $5.31 $4.71
- -------------------------------------------------- -------------------- ---------------------- ---------------------------
Total Return 196.14% 12.74% (5.80%)(2)
Net assets, end of period (000's) $22,159 $150 $113
Ratio of expenses to average net assets 3.08% 0.08% 0.21%(3)
Ratio of expenses to average net assets 3.08% 3.60% 6.73%(3)
(excluding waivers)
Ratio of net investment income (loss) to average (2.92%) 0.19% 2.01% (3)
net assets
Ratio of net investment income (loss) to average (2.92%) (3.33%) (4.15%) (3)
net assets (excluding waivers)
Portfolio turnover rate 80% 50% 0%(3)
</TABLE>
(1) Commencement of Operations
(2) Not Annualized
(3) Annualized
-12-
<PAGE>
Year 2000 Issue
- --------------------------------------------------------------------------------
Like other mutual funds, financial and business organizations and
individuals around the world, the fund could be adversely affected if the
computer systems used by the adviser, the administrator and other service
providers do not properly process and calculate date-related information and
data from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." The investment adviser and the administrator are taking steps that
they believe are reasonably designed to address the Year 2000 Problem with
respect to computer systems that they use. The investment adviser and
administrator are also obtaining reasonable assurances that comparable steps are
being taken by the fund's other major service providers.
Although there can be no assurance at this time that there will be no
adverse impact on the fund, the fund's service providers have advised the fund
that they have been actively working on necessary changes to their computer
systems to prepare for the year 2000. The fund's service providers expect that
their systems, and those of other parties they deal with, will be adapted in
time for that event. However, there can be no assurance that the computer
systems of the companies in which the fund invests will be timely converted or
that the value of such investments will not be adversely affected by the year
2000 issue.
-13-
<PAGE>
LOGO
[PURCHASE APPLICATION FORM]
The Internet Fund
Purchase Application
Mail To: The Internet Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail To: The Internet Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202-5207
Use this form for individual, custodial, trust, profit sharing or pension plan
accounts. Do not use this form for The Internet Fund sponsored IRA or SEP IRA
accounts. For any additional information please call The Internet Fund at
888-386-3999.
- --------------------------------------------------------------------------------
A. Investment
[] By check Payable to The Internet Fund.
Amount $ _______________ ($ 1,000.00 minimum).
- --------------------------------------------------------------------------------
B. Registration
[] Individual ______________________ ______ _______________________________
FIRST NAME M.I. LAST NAME
______________________ _____________________
SOCIAL SECURITY # BIRTHDATE (MO/DY/YR)
[] Joint Owner ______________________ ______ _______________________________
FIRST NAME M.I. LAST NAME
______________________ _____________________
SOCIAL SECURITY # BIRTHDATE (MO/DY/YR)
* Registration will be Joint Tenancy with Rights of
Survivorship (JTWROS), unless otherwise specified.
[] Gift to Minors _______________________________________________________
CUSTODIAN'S FIRST NAME (ONLY ONE PERMITTED)
______ _______________________________
MI LAST NAME
_______________________________________________________
MINOR'S FIRST NAME (ONLY ONE PERMITTED)
______ _______________________________
MI LAST NAME
____________________________________ ____________________
MINOR'S SOCIAL SECURITY # BIRTHDATE (MO/DY/YR)
________________________
STATE OF RESIDENCE
[] Corporation/Trust**_________________________________________________________
NAME OF TRUSTEE(S) *(IF TO BE INCLUDED IN REGISTRATION)
[] Partnership* _________________________________________________________
NAME OF TRUST/CORPORATION/**PARTNERSHIP
[] Other Entity* _________________________________________________________
SOCIAL SECURITY #/TAX ID#
_________________________________________________________
DATE OF AGREEMENT (MO/DY/YR)
* Additional documentation and certification may be
requested.
** Corporate Resolution is required.
- --------------------------------------------------------------------------------
C. Distribution Options:
Capital gains ÷nds will be reinvested if no option is selected.
Capital Gains & Capital Gains &
Dividends Reinvested [] Dividends in Cash []
Capital Gains in Cash & Capital Gains Reinvested
Dividends Reinvested [] & Dividends in Cash []
Unless otherwise indicated, cash distributions
will be mailed to the address in Section D.
- --------------------------------------------------------------------------------
D. Mailing Address
_____________________________________________ ___________
STREET APT/SUITE
___________________________________ ________ ____________
CITY STATE ZIP
________________________________ ________________________________
DAYTIME PHONE # EVENING PHONE #
[] Duplicate Confirmation to:
______________________ ______ _______________________________
FIRST NAME M.I. LAST NAME
_____________________________________________ ___________
STREET APT/SUITE
___________________________________ ________ ____________
CITY STATE ZIP
- --------------------------------------------------------------------------------
E. Telephone Options
Your signed Application must be received at least 15 business days prior to
initial transaction.
To ensure proper debiting/crediting of your bank account, an unsigned
voided check (for checking accounts) or a savings account deposit slip is
required with your Application.
[] Telephone Redemption.
[] Check to address shown on your account
[] Via federal wire to your bank account below ($12.00 charge for each
wire transfer)
[] Via EFT, at no charge, to your bank account below (funds are typically
creditied within two days after redemption)
[] Telephone Purchase (EFT). Permits the purchase of shares using your bank
account to clear the transaction. (Minimum $100.00) Complete bank account
information below.
__________________________________________________________________________
NAME(S) ON BANK ACCOUNT
__________________________________ __________________________________
BANK NAME ACCOUNT NUMBER
__________________________________ __________________________________
BANK ADDRESS BANK ROUTING/ABA#
[2922] 4/98
-14-
<PAGE>
- --------------------------------------------------------------------------------
F. Automatic Investment Plan
Your signed Application must be received at least 15 business days prior to
initial transaction.
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your Application. Please start my Automatic Investment
Plan as described in the Prospectus beginning: Month ________________ Year
_____. I hereby instruct Firstar Mutual Fund Services, LLC, Transfer Agent for
The Internet Fund to automatically transfer $ __________ (minimum $100.00)
directly from my checking, NOW, or savings account named below on the __________
of each month or the first business day thereafter. I understand that I will be
assessed a $20 fee if the automatic purchase cannot be made due to insufficient
funds, stop payment, or for any other reason. Automatic investment plan
contributions to your IRA will be reported as current year contributions.
__________________________________________________________________________
NAME(S) ON BANK ACCOUNT
__________________________________ __________________________________
BANK NAME ACCOUNT NUMBER
__________________________________ __________________________________
BANK ADDRESS BANK ROUTING/ABA#
__________________________________ __________________________________
SIGNATURE OF BANK ACCOUNT OWNER SIGNATURE OF JOINT OWNER
- --------------------------------------------------------------------------------
G. Systematic Withdrawals
I would like to withdraw from The Internet Fund $ ($100.00 minimum)
as follows:
[] I would like to have payments made to me on or about the
__________ day of each month, or
[] I would like to have payments made to me on or about the
__________ day of the months that I have circled below:
Jan. Feb. Mar. Apr. May June
July Aug. Sept. Oct. Nov. Dec.
[] To have payments automatically deposited to your bank account.
Complete bank account information below. (A check will be mailed
to the address in Section D if this box is not checked.)
__________________________________________________________________________
NAME(S) ON BANK ACCOUNT
__________________________________ __________________________________
BANK NAME ACCOUNT NUMBER
__________________________________ __________________________________
BANK ADDRESS BANK ROUTING/ABA#
To ensure proper crediting of your bank account, please attach a voided check or
a deposit slip.
- --------------------------------------------------------------------------------
H. Signature and Certification Required by the Internal Revenue Service
I have received and read the Prospectus for The Internet Fund (the "Fund").
I understand the Fund's investment objectives and policies and agree to be bound
by the terms of the Prospectus. I am of legal age in my state of residence and
have full authority to purchase shares of the Fund and to establish and use any
related privileges.
Neither the Fund nor its transfer agent will be responsible for the
authenticity of transaction instructions received by telephone, provided that
reasonable security procedures have been followed.
By selecting the options in Section E, F, or G, I hereby authorize the Fund
to initiate credits and debits to my account at the bank indicated and for the
bank to credit or debit the same to such account through the Automated Clearing
House ("ACH") system.
Under the penalty of perjury, I certify that (1) the Social Security Number
or Taxpayer Identification Number shown on this form is my correct Taxpayer
Identification Number, and (2) I am not subject to backup withholding either as
a result of a failure to report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup withholding. The IRS does not
require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
__________________________________ __________________________________
DATE (MO/DY/YR) SIGNATURE OF OWNER*
__________________________________ __________________________________
DATE (MO/DY/YR) SIGNATURE OF OWNER, IF ANY
* If shares are to be registered in (1) joint names, both persons should
sign, (2) a custodian for a minor, the custodian should sign, (3) a trust,
the trustee(s) should sign, or (4) a corporation or other entity, an
officer should sign and print name and title on space provided below.
___________________________________________________________________________
PRINT NAME AND TITLE OF OFFICER SIGNING FOR A CORPORATION OR OTHER ENTITY
-15-
<PAGE>
Investment Adviser Kinetics Asset Management Inc.
344 Van Buren Street
North Babylon, NY 11704
Legal Counsel Beckman, Millman, Sanders LLP
116 John Street
New York, NY 10038
Independent Accountants Lilling & Company LLP
10 Cuttermill Road
Great Neck, New York 11021
Transfer Agent, Firstar Mutual Fund Services, LLC
Fund Accountant, 615 East Michigan Street
Administrator Milwaukee, WI 53202
Custodian Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, WI 53202
You may obtain the following and other information on the Internet Fund, Inc.
free of charge:
Statement of Additional Information (SAI) dated April 30, 1999
The SAI for the fund provides more details about the fund's policies and
management. The fund's SAI, is incorporated by reference into this prospectus.
Annual and Semi-Annual Report
The annual and semi-annual reports provide the fund's most recent and portfolio
listings. The annual report contains a discussion of the market conditions and
investment strategies that affected the fund's performance during the last
fiscal year.
You may receive any of the above documents of the documents of the Internet
Fund, Inc. by:
Telephone:
Toll-free (888) FUND-WWW (386-3999)
Mail:
The Internet Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Internet:
http://www.theinternetfund.com
http://www.sec.gov (text only version)
SEC:
You may also receive a text only version of fund documents upon payment of a
duplicating fee, by writing the Public Reference Room of the SEC, Washington,
D.C. 20549-6009. Information about the Fund (including the SAI) can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Please call
the SEC at 1-800-SEC-0330 for information relating to the operation of the
Public Reference Room.
-16-
<PAGE>
1940 Act File No. 811-07595
1
THE INTERNET FUND, INC.
344 Van Buren Street,
North Babylon, NY 11704
(516) 893-4200
(888) FUND-WWW
April 30, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional is not a prospectus but should be read in
conjunction with the Fund's current Prospectus dated April 30, 1999. To obtain
the Prospectus, please write the Fund or call either of the telephone numbers
shown above.
The Fund's audited financial statements for the fiscal year ended December 31,
1998 are incorporated by reference to the Fund's 1998 Annual Report.
<PAGE>
THE INTERNET FUND, INC.
The Fund.......................................................................3
Investment Objectives, Strategies and Risks....................................3
Investment Restrictions........................................................4
Temporary Investments..........................................................5
Portfolio Turnover.............................................................5
Management of the Fund.........................................................6
Control Persons and Principal Holders of Securities............................7
Investment Adviser.............................................................7
Administrative Services........................................................8
Custodian......................................................................9
Capitalization.................................................................9
Pricing of Shares..............................................................9
Purchasing Shares.............................................................10
Redemption of Shares..........................................................10
Brokerage.....................................................................11
Taxes.........................................................................11
Performance Information.......................................................12
Auditors......................................................................13
Financial Statements..........................................................13
<PAGE>
The Fund
- --------------------------------------------------------------------------------
The Internet Fund, Inc. ( the "Fund") was incorporated in New York on March 12,
1996. The Fund's registered office is in North Babylon, New York; with its
principal office at 344 Van Buren Street, North Babylon, New York 11704. The
Fund is a diversified, open-end management investment company.
Investment Objectives, Strategies and Risks
- --------------------------------------------------------------------------------
The Fund's primary investment objective is long-term growth of capital - a goal
it seeks by investing primarily in common stocks and securities of domestic
companies engaged in the Internet and Internet-related activities or services.
Current income is a secondary objective.
Except during temporary defensive periods, not less than 80% of the Fund's total
assets will be invested in the securities of companies engaged in Internet and
Internet-related activities. As a diversified investment company, at least 75%
of the Fund's total assets are required to be invested in securities limited in
respect of any one issuer to not more than 5% of the Fund's total assets and to
not more than 10% of the issuer's voting securities.
Common and Preferred Stock
Common stocks are units of ownership of a corporation. Preferred stocks are
stocks that often pay dividends at a specific rate and have a preference over
common stocks in dividend payments and liquidation of assets. Some preferred
stocks may be convertible into common stock. Convertible securities are
securities that may be converted into or exchanged for a specified amount of
common stock of the same or different issuer within a particular period of time
at a specified price or formula.
Convertible Debt Securities
The Fund may invest in debt securities convertible into common stocks. Debt
purchased by the Fund will consist of obligations of medium-grade or higher,
having at least adequate capacity to pay interest and repay principal.
Non-convertible debt obligations will be rated BBB or higher by S&P, or Baa or
higher by Moody's. Convertible debt obligations will be rated B or higher by S&P
or B or higher by Moody's. Securities rated Baa by Moody's are considered by
Moody's to be medium-grade securities and have adequate capacity to pay
principal and interest. Bonds in the lowest investment grade category (BBB) have
speculative characteristics, with changes in the economy or other circumstances
more likely to lead to a weakened capacity of the bonds to make principal and
interest payments than would occur with bonds rated in higher categories.
Securities rated B are referred to as "high-risk" securities, generally lack
characteristics of a desirable investment, and are deemed speculative with
respect to the issuer's capacity to pay interest and repay principal over a long
period of time. See "Appendix" to this Statement of Additional Information for a
description of debt security ratings.
Fixed-Income Securities
The fixed-income securities in which the Fund may invest are generally subject
to two kinds of risk: credit risk and market risk.
Credit risk relates to the ability of the issuer to meet interest and principal
payments, as they come due. The ratings given a security by Moody's and S&P
provide a generally useful guide as to such credit risk. The lower the rating
given a security by such rating service, the greater the credit risk such rating
service perceives to exist with respect to such security. Increasing the amount
of Fund assets invested in unrate or lower-grade securities, while intended to
increase the yield produced by those assets, also will increase the credit risk
to which those assets are subject.
-3-
<PAGE>
Market risk relates to the fact that the market values of securities in which
the Fund may invest generally will be affected by changes in the level of
interest rates. An increase in interest rates will tend to reduce the market
values of such securities, whereas a decline in interest rates will tend to
increase their values. Medium- and lower-rated securities (Baa or BBB and lower)
and non-rated securities of comparable quality tend to be subject to wilder
fluctuations in yields and market values than higher-rated securities.
Medium-rated securities (those rated Baa or BBB) have speculative
characteristics while lower-rated securities are predominantly speculative. The
Fund is not required to dispose of debt securities whose ratings are downgraded
below these ratings subsequent to the Fund's purchase of the securities. Relying
in part on ratings assigned by credit agencies in making investments will not
protect the Fund from the risk that fixed-income securities in which the Fund
invests will decline in value, since credit ratings represent evaluations of the
safety of principal, and dividend and interest payments on preferred stocks and
debt securities, not the market values of such securities, and such ratings may
not be changed on a timely basis to reflect subsequent events.
At no time will the Fund have more than 5% of its total assets invested in any
fixed-income securities that are unrated or are rated below investment grade
either at the time of purchase or as a result of a reduction in rating after
purchase.
Investment Restrictions
- --------------------------------------------------------------------------------
The Fund is subject to certain investment restrictions described here, which may
be changed only with the approval of the holders of a majority of the Fund's
outstanding shares.
1. The Fund will not act as underwriter for securities of other issuers except
to the extent the Fund may be deemed an underwriter in selling its own portfolio
securities.
2. The Fund will not make loans. The purchase of a portion of a readily
marketable issue of publicly distributed bonds, debentures or other debt
securities will not be considered the making of a loan.
3. With respect to 75% of its total assets, the Fund will not invest more than
5% of its assets in the securities of any one issuer (except securities issued
or guaranteed by the U.S. Government, its agencies, and instrumentality's).
4. With respect to 75% of its total assets, the Fund will not invest in the
securities of any issuer if as a result the Fund holds more than 10% of the
outstanding securities or more than 10% of the outstanding voting securities of
such issuer.
5. The Fund will not borrow money or pledge, mortgage, or hypothecate its assets
except to facilitate redemption requests that might otherwise require untimely
disposition of portfolio securities and then only from banks and in amounts not
exceeding the lesser of 10% of its total assets valued at cost or 5% of its
total assets valued at market at the time of such borrowing, pledge, mortgage,
or hypothecation and except that the Fund may enter into futures contracts and
related options.
-4-
<PAGE>
6. The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, restricted securities, and other securities for which
market quotations are not readily available.
7. The Fund will not invest in the securities of any one industry, except the
Internet and Internet-related industries (and except securities issued or
guaranteed by the U.S. Government, its agencies, and instrumentality's) if as a
result more than 20% of the Fund's total assets would be invested in the
securities of such industry. Except during temporary defensive periods, not less
than 80% of the Fund's total assets will be invested in the securities of
companies engaged in Internet and Internet-related activities, and, except
during temporary defensive periods, the Fund would normally expect at least 90%
of its total assets to be so invested.
8. The Fund will not purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs or real estate
except that the Fund may purchase and sell securities of companies that deal in
oil, gas, or mineral exploration or development programs or interests therein.
9. The Fund will not issue senior securities.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in value in the
Fund's portfolio securities will not constitute a violation of such limitation.
Temporary Investments
- --------------------------------------------------------------------------------
Due to the changing nature of the Internet, the national economy and market
conditions, the Fund may, as a temporary defensive measure, invest without
limitation as to the amount in money market securities with a rating of A2-P2 or
higher.
In order to have funds available for redemption and investment opportunities,
the Fund may also hold a portion of its portfolio in cash or U.S. short-term
money market instruments. Certificates of deposit purchased by the Fund will be
those of U.S. banks having total assets at the time of purchase in excess of $1
billion, and bankers' acceptances purchased by the Fund will be guaranteed by
U.S. or foreign banks having total assets at the time of purchase in excess of
$1 billion. The Fund anticipates that not more than 10% of its total assets will
be so invested in money market instruments or held in cash at any given time,
except when the Fund is in a temporary defensive posture
Portfolio Turnover
- --------------------------------------------------------------------------------
In order to qualify for the beneficial tax treatment afforded regulated
investment companies, and to be relieved of Federal tax liabilities, the Fund
must distribute substantially all of its net income to stockholders generally on
an annual basis. Thus, the Fund may have to dispose of portfolio securities
under disadvantageous circumstances to generate cash or borrow cash in order to
satisfy the distribution requirement. The Fund does not trade in securities for
short-term profits but, when circumstances warrant, securities may be sold
without regard to the length of time they have been held.
-5-
<PAGE>
Management of the Fund
- --------------------------------------------------------------------------------
Board of Directors
The Fund is managed by a board of directors. The Fund's Board of Directors
consist of five individuals, two of whom are not "interested persons" of the
Fund as that term is defined in the 1940 Act. The directors are fiduciaries for
the fund's shareholders and are governed by the laws of the State of New York in
this regard. They establish policies for the operation of the Fund and appoint
the officers who conduct the daily business of the Fund.
Officers and directors are listed below with their addresses, present positions
with the Fund and principal occupations.
<TABLE>
<CAPTION>
- ----------------------------------- --------- ------------------------ -------------------------------------------
Name and Address Age Position Principal Occupation
during the Past Five Years
- ----------------------------------- --------- ------------------------ -------------------------------------------
<S> <C> <C> <C>
Margaret B. Doyle* 72 President, Treasurer, President, The Internet Fund, Inc. from
48 Gamecock Lane and Director 1996 to present. Retired Superintendent,
Bablyon, NY 11702 North Babylon USFD.
- ----------------------------------- --------- ------------------------ -------------------------------------------
Francis J. Alexander* 54 Vice President, Vice President and Portfolio Manager, The
270 Greenwich Ave. Secretary and Director Internet Fund, Inc. from 1996 to
Greenwich, CT 06830 present. Portfolio Manager, Alexander
Capital Management, Inc. from 1980 to
Present.
- ----------------------------------- --------- ------------------------ -------------------------------------------
Murray Stahl 41 Director President, Horizon Asset Management from
342 Madison Avenue 1994 to present.
New York, NY 10017
- ----------------------------------- --------- ------------------------ -------------------------------------------
Kathleen Campbell* 36 Director Counselor-at-law, Campbell & Campbell Law
13 Elm Road Offices from 1995 to present.
Scarsdale, NY 10583
- ----------------------------------- --------- ------------------------ -------------------------------------------
Douglas Cohen, C.P.A. 36 Director Certified Public Accountant, Douglas
86 Samuel Street Cohen, C.P.A. from 1994 to present.
Ronkonkoma, NY 11779
- ----------------------------------- --------- ------------------------ -------------------------------------------
*This director is deemed to be an interested person as defined in the 1940 Act.
</TABLE>
-6-
<PAGE>
Compensation
For their service as directors, the independent directors receive $99 per
meeting attended, as well as reimbursement for expenses incurred in connection
with attendance at such meetings. The interested trustees of the Fund receive no
compensation for their service as directors. The table below details the amount
of compensation received by the directors from the Fund for the past fiscal
year.
Presently, none of the executive officers receive compensation from the Fund.
<TABLE>
<CAPTION>
- -------------------------------- ----------------- ----------------------- ---------------------- ------------------------
Name and Position Aggregate Pension or Retirement Estimated Annual Total Compensation
Compensation Benefits Accrued As Benefits Upon from Fund Paid to
From Fund Part of Fund Expenses Retirement Directors
- -------------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Margaret B. Doyle* None None None None
Director, President and
Treasurer
Francis J. Alexander* None None None None
Director, Vice President and
Secretary
Murray Stahl $198 None None $198
Director
Kathleen Campbell*(1) $297 None None $297
Director
Douglas Cohen, C.P.A. $297 None None $297
Director
- -------------------------------- ----------------- ----------------------- ---------------------- ------------------------
*This director is deemed to be an interested person as defined in the 1940 Act.
</TABLE>
(1) During the year ended December 31, 1998, Kathleen Campbell was classified as
a non-interested person, which is why she previously received compensation. In
1999, Ms. Campbell became the daughter-in-law of Margaret Doyle and, as a
result, the Fund chose to change her classification to an "interested" person.
Ms. Campbell will receive no compensation as a director during 1999.
Control Persons and Principal Holders of Securities
- --------------------------------------------------------------------------------
Currently, there are no control persons or principal holders of securities of
the Fund. Control persons are persons deemed to control the Fund because they
own beneficially over 25% of the outstanding equity securities. Principal
holders are persons that own beneficially 5% or more of the Fund's outstanding
equity securities.
Management Ownership
As a group, the officers and directors of the Fund own less than 1% of the
outstanding shares of the Fund.
Investment Adviser
- --------------------------------------------------------------------------------
Kinetics Asset Management, Inc., is a New York corporation that serves as an
investment adviser to the Fund pursuant to a Management Contract dated April 5,
1996. Margaret B. Doyle is the president and treasurer of Kinetics Asset
Management, Inc. Ms. Doyle has more than 29 years experience in a variety of
professional and managerial positions in the software industry. Mr. Francis J.
Alexander is vice president, secretary and a portfolio manager of Kinetics Asset
Management, Inc. Mr. Alexander has more than 21 years of investment experience
as a portfolio manager.
-7-
<PAGE>
This Management Contract continues on a year-to-year basis provided that
specific approval is voted at least annually by the Board of Directors of the
Fund or by the vote of the holders of a majority of the outstanding voting
securities of the Fund. In either event, it must also be approved by a majority
of the directors of the Fund who are neither parties to the Contract nor
interested persons as defined in the Investment Company Act of 1940 at a meeting
called for the purpose of voting on such approval. The Investment Adviser's
decisions are made subject to direction of the Fund's Board of Directors. The
Contract may be terminated at any time, without the payment of any penalty, by
the Board of Directors or by vote of a majority of the outstanding voting
securities of the Fund. Ultimate decisions as to the investment policy and as to
individual purchases and sales of securities are made by the Fund's officers and
directors.
Under the Contract, Kinetics Asset Management, Inc. furnishes investment advice
to the Fund by continuously reviewing the portfolio and recommends to the Fund
when, and to what extent, securities should be purchased or disposed. Pursuant
to the Contract, the Investment Advisor:
(1) renders research, statistical and Advisory services to the Fund;
(2) makes specific recommendations based on the Fund's investment requirements;
(3) pays the salaries of those of the Fund's employees who may be officers or
directors or employees of the Investment Advisor.
For these services, the Fund has agreed to pay to Kinetics Asset Management,
Inc. an annual fee of 1.25% of the Fund's average daily net assets. All fees are
computed on the average daily closing net asset value of the Fund and are
payable monthly. The fee is higher than the fee paid by most other funds. As
compensation for the services rendered by the Investment Adviser under the
Contract for the last two fiscal years and since commencement of operations, the
fund paid the following amounts:
<TABLE>
<S> <C> <C>
October 21, 1996 to
December 31, 1996 December 31, 1997 December 31, 1998
----------------- ----------------- -----------------
$215 $2,058 $38,561
</TABLE>
Fees of the custodian, administrator, fund accountant and transfer agent are
paid by the Fund. The Fund pays all other expenses, including:
o fees and expenses of directors not affiliated with the Advisor;
o legal and accounting fees;
o interest, taxes, and brokerage commissions; and
o record keeping and the expense of operating its offices.
Administrative Services
- --------------------------------------------------------------------------------
Administrative services include, but are not limited to, providing office space,
equipment, telephone facilities, various personnel, including clerical and
supervisory, and computers, as is necessary or beneficial to provide compliance
services to the Fund. Since the Fund's inception, the Adviser has provided
administrative services at no additional cost to the Fund. Blue-sky services
(i.e., registering the Fund's securities in the various states) were provided by
Clearsky, Inc.
-8-
<PAGE>
As of March 1, 1999, Firstar Mutual Fund Services, LLC, a subsidiary of Firstar
Bank Milwaukee, N.A., began providing administrative personnel and services
(including blue-sky services) to the Fund. Firstar provides these services at an
annual minimum fee of $40,000. Firstar Mutual Fund Services, LLC charges the
Fund an annual fee of 0.07% of average daily net assets on the first $200
million, 0.06% on the next $500 million and 0.04% on the balance. As of March 1,
1999, Firstar Mutual Fund Services, LLC also began serving as fund accountant
and transfer agent under separate agreements.
Custodian
- --------------------------------------------------------------------------------
Firstar Bank Milwaukee, N.A. is custodian for the securities and cash of the
Fund. Under the Custodian Agreement, Firstar Bank Milwaukee, N.A. holds the
Fund's portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. The custodian receives an annual fee equal to
0.015% of the Fund's average daily net assets with a minimum annual fee of
$3,000.
Capitalization
- --------------------------------------------------------------------------------
The authorized capitalization of the Fund consists of 10,000,000 shares of
common stock of $0.001 par value per share. Each share has equal dividend,
distribution and liquidation rights. There are no conversion or preemptive
rights applicable to any shares of the Fund. All shares issued are fully paid
and non-assessable. Each holder of common stock has one vote for each share
held. Voting rights are non-cumulative.
Pricing of Shares
- --------------------------------------------------------------------------------
Shares of the Fund are sold on a continual basis at the net asset value per
share next computed following acceptance of an order by the Fund. The Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at the close of normal trading (currently 4:00 p.m. Eastern Time)
on each day the New York Stock Exchange is open for trading. The NYSE is closed
on the following holidays: New Year's Day, Martin Luther King, Jr.'s Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities listed on a U.S. securities exchange or Nasdaq for which market
quotations are readily available are valued at the last quoted sale price on the
day the valuation is made. Price information on listed securities is taken from
the exchange where the security is primarily traded. Options, futures, unlisted
U.S. securities and listed U.S. securities not traded on the valuation date for
which market quotations are readily available are valued at the most recent
quoted bid price.
Fixed-income securities (other than obligations having a maturity of 60 days or
less) are normally valued on the basis of quotes obtained from pricing services,
which take into account appropriate factors such as institutional sized trading
in similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics and other market data. Fixed-income securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost if it reflects fair value. In the event that amortized cost does not
reflect market, market prices as determined above will be used. Other assets and
securities for which no quotations are readily available (including restricted
securities) will be valued in good faith at fair value using methods determined
by the Board of Directors of the Fund.
-9-
<PAGE>
Purchasing Shares
- --------------------------------------------------------------------------------
Shares of the Fund are sold in a continuous offering and may be purchased on any
business day though authorized investment dealers or directly from the Fund.
Except for the Fund itself, only the investment dealers that have a sales
agreement with the Fund are authorized to sell shares of the Fund.
Stock Certificates and Confirmations
The Fund does not intend to issue stock certificates representing shares
purchased. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by the Fund to the stockholder's
address of record.
Special Incentive Programs
At various times the Fund may implement programs under which a dealer's sales
force may be eligible to win nominal awards for certain sales efforts or
recognition program conforming to criteria established by the Fund, or
participate in sales programs sponsored by the Fund. In addition, the Adviser,
in its discretion may from time to time, pursuant to objective criteria
established by the Adviser, sponsor programs designed to reward selected dealers
for certain services or activities that are primarily intended to result in the
sale of shares of the Fund. These program will not change the price you pay for
your shares or the amount that the Fund will receive from such sale.
Investing Through Authorized Dealers
If any authorized dealer receives an order of at least $1,000, the dealer may
contact the Fund directly. Orders received by dealers by the close of trading on
the New York Stock Exchange on a business day that are transmitted to the Fund
by 4:00 p.m. EST on that day will be effected at the net asset value per share
determined as of the close of trading on the New York Stock Exchange on that
day. Otherwise, the orders will be effected at the next determined net asset
value. It is the dealer's responsibility to transmit orders so that they will be
received by the Distributor before 4:00 p.m. EST.
Redemption of Shares
- --------------------------------------------------------------------------------
To redeem shares, shareholders may send a written request to:
The Internet Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, Wisconsin 53201-0701
The written letter of instructions must include:
|X| the shareholder's name,
|X| the fund name,
|X| the account number,
|X| the share or dollar amount to be redeemed, and
|X| signatures by all shareholders on the account.
-10-
<PAGE>
The proceeds will be wired to the bank account of record or sent to the address
of record within seven days.
If a shareholder requests that redemption proceeds be sent to an address other
than that on record with the Fund or proceeds be made payable to someone other
than to the shareholder(s) of record, the written request must have signatures
guaranteed by:
|X| a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;
|X| a member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
|X| a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
|X| any other "eligible guarantor institution" as defined in the
Securities Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Brokerage
- --------------------------------------------------------------------------------
The Adviser requires all brokers to effect transactions in portfolio securities
in such a manner as to get prompt execution of the orders at the most favorable
price.
The Adviser selects brokers who, in addition to meeting primary requirements of
execution and price, may furnish statistical or other factual information and
services, which, in the opinion of the Adviser, are helpful or necessary to the
Fund's normal operations. Information or services may include economic studies,
industry studies, statistical analysis, corporate reports or other forms of
assistance to the Fund or its Adviser. No effort is made to determine the value
of these services or the amount they might have reduced expenses of the Adviser.
Other than set forth above, the Fund has no fixed policy, formula, method or
criteria that it uses in allocating brokerage business to brokers furnishing
these materials and services. The Board of Directors evaluates and reviews the
reasonableness of brokerage commissions paid semiannually.
Taxes
- --------------------------------------------------------------------------------
Under provisions of Sub-Chapter M of the Internal Revenue Code of 1986 as
amended, the Fund, by paying out substantially all of its investment income and
realized capital gains, intends to continue to be relieved of federal income tax
on the amounts distributed to shareholders. In order to qualify as a "regulated
investment company" under Sub-Chapter M, at least 90% of the Fund's income must
be derived from dividends, interest and gains from securities transactions. No
more than 50% of the Fund's assets may be in security holdings that exceed 5% of
the total assets of the Fund at the time of purchase.
-11-
<PAGE>
Distribution of any net long-term capital gains realized by the Fund will be
taxable to the shareholder as long-term capital gains, regardless of the length
of time Fund shares have been held by the investor. All income realized by the
Fund, including short-term capital gains, will be taxable to the shareholder as
ordinary income. Dividends from net income will be made annually or more
frequently at the discretion of the Fund's Board of Directors. Dividends
received shortly after purchase of shares by an investor will have the effect of
reducing the per share net asset value of his shares by the amount of such
dividends or distributions and, although in effect a return of capital, are
subject to federal income taxes.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains, distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on a W-9 tax form supplied
by the Fund that your Social Security or Taxpayer Identification Number provided
is correct and that you are not currently subject to back-up withholding, or
that you are exempt from back-up withholding.
Performance Information
- --------------------------------------------------------------------------------
Total Return
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
P(1+T)n = ERV
where P equals a hypothetical initial payment of $1,000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions. The average annual total return
of the Fund for one fiscal year and since commencement of operations is as
follows:
<TABLE>
<CAPTION>
Since Commencement of Operations
1 Year ended 12/31/98 10/21/96 to 12/31/98
--------------------- --------------------
<S> <C> <C>
The Internet Fund's
Annualized Total Return 196.05% 68.43%
</TABLE>
Cumulative Total Return
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between these factors and their contributions to total return.
The cumulative total return for the Internet Fund since commencement of
operations on October 21, 1996 to December 31, 1998 is 214.40%.
-12-
<PAGE>
Other Information
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount.
If permitted by applicable law, the Fund may advertise the performance of
registered investment companies or private accounts that have investment
objectives, policies and strategies substantially similar to those of the Fund.
Comparison of Fund Performance
The performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc., the
Donoghue Organization, Inc. or other independent services which monitor the
performance of investment companies, and may be quoted in advertising in terms
of its ranking in each applicable universe. In addition, the Fund may use
performance data reported in financial and industry publications, including
Barron's, Business Week, Forbes, Fortune, Investor's Daily, IBC/Donoghue's Money
Fund Report, Money Magazine, The Wall Street Journal and USA Today.
The Fund may from time to time use the following unmanaged indices for
performance comparison purposes:
o S&P 500 - The S&P 500 is a Fund of 500 stocks designed to mimic
the overall equity market's industry weightings. Most, but not
all, large capitalization stocks are in the index. There are also
some small capitalization names in the index. The list is
maintained by Standard & Poor's Corporation It is market
capitalization weighted. There are always 500 issuers in the S&P
500. Changes are made by Standard & Poor's as needed.
o Russell 2000 - The Russell 2000 is composed of the 2,000 smallest
stocks in the Russell 3000, a market value weighted index of the
3,000 largest U.S. publicly-traded companies.
o The NASDAQ Composite Index - The NASDAQ Composite Index is a
broad-based capitalization - weighted index of all NASDAQ stocks.
Auditors
- --------------------------------------------------------------------------------
Lilling & Company LLP serves as the Fund's independent auditors, whose services
include examination of the Fund's financial statements and the performance of
other related audit and tax services.
Financial Statements
- --------------------------------------------------------------------------------
The audited financial statements for the Fund are incorporated by reference to
the Fund's Annual Report, for the year ended 1998, as filed with the Securities
and Exchange Commission on February 25, 1999.
-13-
<PAGE>
THE INTERNET FUND, INC.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Certificate of Incorporation filed October 17, 1996 is incorporated by
reference to Registrant's Pre-Effective Amendment No. 2 to the Registration
Statement.
(b) By-laws filed October 17, 1996 is incorporated by reference to Registrant's
Pre-Effective Amendment No. 2.
(c) Instruments Defining Rights of Security Holders. Not Applicable.
(d) Investment Advisory Contract between Registrant and Kinetics Asset
Management, Inc. dated April 5, 1996 is incorporated by reference to
Registrant's Pre-Effective Amendment No. 2 to the Registration Statement
filed October 17, 1996.
(e) Distribution Agreement Not applicable.
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g) Custodian Contract between Registrant and Firstar Bank Milwaukee, N.A. to
be filed by subsequent amendment.
(h) Other Material Contracts
(1) Fund Administration Servicing Agreement between Registrant and Firstar
Mutual Fund Services, LLC to be filed by subsequent amendment.
(2) Fund Accounting Servicing Agreement between Registrant and Firstar Mutual
Fund Services, LLC to be filed by subsequent amendment.
(3) Transfer Agent Agreement between Registrant and Firstar Mutual Fund
Services, LLC to be filed by subsequent amendment.
(i) Legal Opinion to be filed by subsequent amendment.
(j) Other Opinions.
(1) Consent of Auditors filed with this amendment.
(k) Omitted Financial Statements. Not applicable.
(l) Initial Capital Understanding. Not applicable.
(m) Rule 12b-1 Plan. Not applicable.
(n) Financial Data Schedules to be filed by subsequent amendment.
(o) Rule 18f-3 Plan. Not applicable.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Registrant is not controlled by or under common control with any
person.
<PAGE>
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant, the registrant has been advised that, in
the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Besides serving as investment adviser to the Fund, the Adviser is not
currently (and has not during the past two years) engaged in any other
business, profession, vocation or employment of a substantial nature.
Information regarding the business, vocation or employment of a
substantial nature of the Adviser and its officers is incorporated by
reference to the information contained in Part B of this Registration
Statement.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) The Fund acts as its own underwriter.
(b) Information regarding the Fund's directors is incorporated by
reference to the information contained under "Management of the
Fund" in Part B of this Registration Statement.
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at the
following locations:
Records Relating to: Are located at:
(1) Registrant's fund accounting Firstar Mutual Funds Services, LLC
servicing agent, administrator and 615 East Michigan Street
transfer Milwaukee, Wisconsin 53202
(2) Registrant's investment adviser Kinetics Asset Management
344 Van Buren Street
North Babylon, NY 11704
(3) Registrant's custodian Firstar Bank Milwaukee, N.A.
777 E. Wisconsin Avenue
Milwaukee, WI 53202
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS:
Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, THE INTERNET FUND, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement pursuant to Rule 485(a) under the
Securities Act of 1933 and has duly caused this Amendment to its Registration
Statement to be signed on its behalf by the undersigned, thereto duly
authorized, in the Town of Babylon and State of New York, on the 1st day of
March, 1999.
THE INTERNET FUND, INC.
By: /s/ Margaret B. Doyle
Margaret B. Doyle, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/Margaret B. Doyle Director, President and Treasurer March 1, 1999
- --------------------
Margaret B. Doyle
/s/ Francis J. Alexander Director, Vice President and March 1, 1999
- ------------------------
Francis J. Alexander Secretary
/s/ Murray Stahl Director March 1, 1999
- ----------------
Murray Stahl
/s/ Kathleen Campbell Director March 1, 1999
- ---------------------
Kathleen Campbell
/s/ Douglas Cohen, CPA Director March 1, 1999
- ----------------------
Douglas Cohen, CPA
</TABLE>
<PAGE>
Exhibit (j)(1)
Lilling & Company LLP
Certified Public Accountants
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion by reference in Post-Effective Amendment No. 36 to
the Registration Statement on Form N-1A of The Internet Fund, Inc. of our report
dated February 15, 1999 on our examination of the financial statements of such
Company. We also consent to the reference to our firm in such Post-Effective
Amendment.
/s/ Lilling & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
February 15, 1999
Ten Cutter Mill Road, Great Neck, NY 11021-3201
o (516) 829-1099 o Fax (516) 829-1065
