SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to ss.240.14a-11(c) or ss.240.14a-12
THE INTERNET FUND, INC.
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Name of Registrant as Specified In Its Charter
N/A
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Name of Person(s) Filing Proxy Statement if other than the Registrant
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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<PAGE>
5) Total fee paid:
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[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
such offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule
and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
THE INTERNET FUND, INC.
477 Madison Avenue
New York, NY 10173
IMPORTANT PROXY INFORMATION
August 28, 1999
Dear Shareholder:
I am writing to inform you that the Annual Meeting of Stockholders for The
Internet Fund, Inc. (the "Fund") will be held at 4:00 p.m. on Wednesday, October
20, 1999 at (TO BE DETERMINED), New York, New York. The Meeting has been called
in order to vote on a number of important issues. As a shareholder in the Fund,
you have the opportunity to voice your opinion on these matters.
The enclosed Proxy Statement describes five (5) proposals. In addition to the
election of Directors to the Board of Directors and the ratification of the
selection of independent accountants, the Proxy Statement includes proposals to
approve the adoption of a master-feeder fund structure and a change to permit
the Fund to be a non-diversified investment company.
The Proxy Statement also contains a proposal to approve the change in the Fund's
state of incorporation from a New York corporation to a series of a Maryland
corporation. This change in the state of incorporation will have no effect on
the portfolio management or operation of the Fund. In fact, the Fund's offices
will remain in the New York metropolitan area. The Board of Directors
unanimously recommends that stockholders vote to approve this change because it
has determined that a Maryland corporation offers certain state regulations
which are advantageous specifically to mutual funds. Your investment in the
newly organized fund will be identical to that of your investment in the Fund.
We have enclosed a Proxy Statement, Proxy Card, business reply envelope and
voting instructions for your review. Please take a moment to look over the
material and cast your vote on the proposals put forth.
THE FUND'S BOARD OF DIRECTORS UNANIMOUSLY BELIEVES THAT EACH OF THESE
PROPOSALS IS IN THE BEST INTERESTS OF THE FUND AND ITS STOCKHOLDERS. THE BOARD
URGES YOU TO VOTE IN FAVOR OF EACH PROPOSAL.
The Fund has enlisted the services of Shareholder Communications Corporation
("SCC"), a professional proxy solicitation firm, to assist shareholders with the
proxy process. As the meeting date approaches, you may receive a call from SCC
encouraging you to exercise your right to vote.
Again, we urge you to review the enclosed proxy material and vote your shares
utilizing one of the convenient methods found on the voting insert. By voting
your shares, you will help us eliminate the possibility of additional expenses
incurred from further solicitation efforts.
If you have any questions regarding the enclosed material or the execution of
your vote, please call Shareholder Communications Corporation at 1-800-634-9899.
We appreciate your time and efforts.
Sincerely,
Steven R. Samson
President
<PAGE>
THE INTERNET FUND, INC.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 20, 1999
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
THE INTERNET FUND, INC. (the "Fund"), a registered investment company, will
be held at _________________________________ on October 20, 1999 at 4:00 p.m.
for the following purposes:
(1) To elect eight (8) members to the Board of Directors
to serve until the next meeting of stockholders
called for the purpose of electing directors and/or
until their successors are elected;
(2) To consider and approve the reorganization of the
Fund from a New York corporation to a series of
Kinetics Mutual Funds, Inc., a Maryland corporation;
(3) To consider and approve the adoption of a Master-Feeder
Fund Structure for the Fund;
(4) To consider and approve a change to permit the Fund
to be a non-diversified investment company;
(5) To ratify the selection of McCurdy & Associates,
CPA's, Inc. as the Fund's independent accountants;
and
(6) To consider any other business that may properly come
before the Annual Meeting in the discretion of the
proxies or their substitutes.
At such meeting, only holders of common stock of record at the close of
business on August 25, 1999 will be entitled to vote.
You are encouraged to attend this meeting in person, but if you cannot
do so, please complete, date, sign and return the accompanying proxy at your
earliest convenience.
STOCKHOLDERS ARE ENCOURAGED TO VOTE PROMPTLY BY EXECUTING AND RETURNING
IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY. STOCKHOLDERS MAY ALSO VOTE BY
TELEPHONE OR THROUGH THE INTERNET BY FOLLOWING THE SIMPLE INSTRUCTIONS ON THE
PROXY CARD PROVIDED. YOUR VOTE IS IMPORTANT FOR THE PURPOSE OF ENSURING A QUORUM
AT THE ANNUAL MEETING. ANY PROXY MAY BE REVOKED AT ANY TIME BEFORE THEY ARE
EXERCISED BY THE SUBSEQUENT EXECUTION AND SUBMISSION OF A REVISED PROXY, BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE FUND AT ANY TIME BEFORE THE PROXY IS
EXERCISED OR BY VOTING IN PERSON AT THE ANNUAL MEETING.
By Order of the Board of Directors
Dated: August 28, 1999
-----------------------------------
Brooke B. Connell, Secretary
<PAGE>
PROXY STATEMENT
SOLICITATION, REVOCATION AND VOTING OF PROXIES
The enclosed proxy is solicited by and on behalf of the Board of
Directors of THE INTERNET FUND, INC. (the "Fund") for use at the Annual Meeting
of Stockholders (the "Annual Meeting"), or any adjournment thereof, to be held
on October 20, 1999 at 4:00 p.m. at __________________________________. The
Fund's investment adviser and co-administrator is Kinetics Asset Management,
Inc. (the "Adviser"), the principal office of which is located at 344 Van Buren
Street, North Babylon, New York 11704. The Fund's principal underwriter and
distributor is T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington,
Connecticut 06032. The Fund's transfer agent and sub- administrator is Firstar
Mutual Funds Services, LLC, located at 615 East Michigan Street, Milwaukee,
Wisconsin 53202. The Fund will furnish a copy of its annual report to any
stockholder without charge and within one (1) day of the receipt of such
request. To request such a copy, a stockholder may write to: THE INTERNET FUND,
c/o Firstar Mutual Fund Services, LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202 or call toll free (888) 386-3999. This Proxy Statement and the
enclosed Proxy Card are expected to be mailed on or about September 3, 1999, to
stockholders of record at the opening of business on August 25, 1999 (the
"Record Date"). On the Record Date, the Fund had outstanding ______________
shares of common stock. The Fund issues only one class of common stock.
Stockholders will be entitled to one (1) vote for each full share, and a partial
vote for each partial share, of the Fund that they own on the Record Date on
each matter.
A majority of the shares entitled to vote, represented in person or by
proxy, will constitute a quorum. The presence of a quorum is necessary for the
transaction of business. Abstentions and broker non-votes will be included for
purposes of determining whether a quorum is present at the meeting, but will be
treated as votes not cast and, therefore, will not be counted in determining
whether matters to be voted upon at the meeting have been approved.
The election of the nominees for director and the ratification of the
selection of independent accountants require the affirmative vote of a majority
of shares present at the meeting either in person or by proxy. The approval of
the adoption of the master-feeder structure and the change of the Fund's status
to become a non-diversified investment company require approval by a "vote of a
majority of the outstanding voting securities" of the Fund as defined in the
Investment Company Act of 1940, as amended (the "1940 Act"). Under the 1940 Act,
such approval means the affirmative vote at a meeting of shareholders of the
lesser of (a) more than fifty (50%) percent of the Fund's outstanding shares, or
(b) sixty-seven (67%) percent or more of the shares present or represented in
person or by proxy at the meeting, if the holders of more than fifty (50%)
percent of the Fund's outstanding shares are present in person or represented by
proxy. Approval of the reorganization of the Fund from a New York corporation
into a series of a Maryland corporation requires the affirmative vote of
two-thirds (2/3's) of all outstanding shares entitled to vote.
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<PAGE>
All shares represented by properly executed proxies, unless such
proxies have been previously revoked, will be voted at the Annual Meeting in
accordance with the directions of the proxies. A stockholder who executes and
returns a proxy may revoke it at any time prior to its exercise by delivering to
the Secretary of the Fund written notice of its revocation, sending the Fund a
proxy with a later date, or voting in person at the meeting. The Fund will pay
the cost of holding this Annual Meeting including, the cost of printing and
mailing the proxy statement and the form of proxy, the tabulation of votes cast
and any out-of-pocket expenses incurred with respect to the Annual Meeting. The
cost of soliciting proxies, which is estimated at
$15,000 is also being paid by the Fund. In addition to the solicitation by
mailing, officers of the Fund may ask shareholders in personal conversations or
by telephone or telecopy to return proxies.
If the Proxy Card furnished with this Proxy Statement is properly
signed and returned, or if you vote your proxy by telephone at 1-800-___-____ or
through the internet at [www.proxyvote.com] by following the simple instructions
on the Proxy Card, it will be voted in accordance with the instructions on that
Proxy Card. If no instructions are specified on a Proxy Card that is properly
signed and returned, the shares represented by the Proxy Card will be voted
"FOR" each of the Proposals set forth in this Proxy Statement.
OWNERSHIP OF SHARES
As of August 25, 1999, the officers and Directors of the Fund owned
less than one (1%) percent of the Fund's outstanding shares.
Stockholders known by the Fund to own of record more than five (5%)
percent of the outstanding shares of the Fund on August 25, 1999, and the
percentage of the outstanding shares owned on that date are listed below. Each
record owner shown below is a registered broker-dealer and holds the shares
listed for the benefit of certain of its customers, each of which beneficially
owns a portion of such shares.
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER AMOUNT OF PERCENTAGE OF
AND ADDRESS SHARES OWNED OUTSTANDING SHARES
------------------- ------------ ------------------
<S> <C> <C>
National Financial Services Corp. .%
200 Liberty Street
New York, NY 10281
National Investors Service Corp. .%
55 Water Street
New York, NY 10041
DLI/Pershing Group .%
One Pershing Plaza
Jersey City, NJ 07399
</TABLE>
-3-
<PAGE>
PROPOSAL 1 -- NOMINEES FOR ELECTION AS DIRECTORS
Eight (8) persons have been nominated to be elected to serve on
the Board of Directors of the Fund (the "Board") until the next Annual Meeting
of Stockholders and/or until their successors have been duly elected and qualify
for office. The members of the Board of Directors during the fiscal year ended
December 31, 1998 were Margaret J. Doyle, Francis J. Alexander, Murray Stahl,
Kathleen Campbell and Douglas Cohen. Ms. Campbell and Messrs. Cohen and Stahl
have served as Directors since April 4, 1996, Mr. Alexander had served since
July 11, 1996 and Mrs. Doyle has served since December 20, 1997. Mrs. Doyle has
decided not to stand for reelection to the Board and Mr. Alexander resigned from
the Board on June 24, 1999. The nominees for Director are set forth in the
following table. The table also sets forth information about each of them
individually, concerning age, address, principal occupation, business experience
for at least the past five (5) years, and ownership of shares of the Fund. An
asterisk denotes "interested persons" of the Fund as defined in the 1940 Act
(the "Interested Directors").
<TABLE>
<CAPTION>
NOMINEES FOR THE BOARD OF DIRECTORS OF THE FUND
PRINCIPAL OCCUPATION AND OTHER NUMBER OF SHARES BENEFICIALLY
NAME (AGE) AND BUSINESS EXPERIENCE DURING THE OWNED AND PERCENT OF CLASS
ADDRESS PAST FIVE (5) YEARS AS OF AUGUST 25, 1999
- -------------- ------------------------------ -----------------------------
<S> <C> <C>
JOSEPH E. BRESLIN (Age 45) J.E. Breslin & Co., Investment 0 and 0%
100 Park Avenue, Suite 1600 Management Consulting Firm
New York, NY 10017 (President - 1994 - present).
KATHLEEN CAMPBELL* (Age 34) The Campbell Law Offices, 0 and 0%
2 Madison Avenue Counselor-at-Law.
Valhalla, NY 10595
DOUGLAS COHEN (Age 37) Wagner, Zwerman & Strinberg, LLP 0 and 0%
6 Saywood Lane Certified Public Accountant (1997 -
Stonybrook, NY 11790 present); Leon D. Alpern & Co.
(1985 - 1997).
WILLIAM J. GRAHAM (Age 37) Attorney, Bracken & Margolin, LLP 0 and 0%
20 Franklin Boulevard Attorneys-at-Law;
Long Beach, NY 11561 Gabor & Gabor (1995 - 1997).
STEVEN T. RUSSELL (Age 35) Attorney, Private Law Practice; 0 and 0%
146 Fairview Avenue Professor of Business Law
Bayport, NY 11705 State University of New York.
STEVEN R. SAMSON* (Age 45) Kinetics Asset Management, Inc., 0 and 0%
477 Madison Avenue (President and Chief Executive Officer);
New York, NY 10022 The Internet Fund, Inc., (President);
Managing Director, The Chase Manhattan
Bank - Global Asset Management and
Mutual Funds (1993 - July 1999).
-4-
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION AND OTHER NUMBER OF SHARES BENEFICIALLY
NAME (AGE) AND BUSINESS EXPERIENCE DURING THE OWNED AND PERCENT OF CLASS
ADDRESS PAST FIVE (5) YEARS AS OF AUGUST 25, 1999
- -------------- ------------------------------ -----------------------------
<S> <C> <C>
MURRAY STAHL (Age 46) Horizon Asset Management (Chairman). 0 and 0%
342 Madison Avenue
New York, NY 10173
JOHN J. SULLIVAN (Age 68) Retired, Senior Advisor, Long Term 0 and 0%
31 Hemlock Drive Credit Bank of Japan, Ltd.;
Sleepy Hollow, NY 10591 Executive Vice President,
LTCB Trust Company.
</TABLE>
DIRECTOR COMPENSATION
For the year ended December 31, 1998, the members of the Board of
Directors who are not Interested Directors of the Fund (the "Independent
Directors") were paid a fee of $99 for each Board meeting attended and were
reimbursed for any travel or other expenses of attendance. For the year ending
December 31, 1999 and thereafter, the Fund's Independent Directors will receive
an annual stipend of $5,000 as well as $500 for each Board or committee meeting
attended. Independent Directors will also continue to be reimbursed for any
travel or other expenses incurred for such attendance. The officers of the Fund
are not paid compensation by the Fund for their work as officers, and no fees
are paid to Interested Directors for the performance of their duties.
The Board held three (3) meetings in the Fund's year ended December 31,
1998 and all Directors attended each meeting held, except for Mr. Stahl who
missed one Board Meeting in 1998. Currently, the Board has no committees. Upon
election of the Board, the Fund intends to form both an audit and nominating
committee upon which all Independent Directors will serve. The Audit Committee
will recommend the selection of independent public accountants for the Fund,
review the scope of the audit, evaluate the independent accountants' work and
opinions and report its findings to the Board. The Nominating Committee will
recommend to the Board nominees for election as directors to fill vacancies
which are to be filled by persons who will be Independent Directors of the Fund.
For the fiscal year ended December 31, 1998, the Directors listed below
received the following compensation:
<TABLE>
<CAPTION>
NAME, POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION PAID FROM
WITH FUND FROM FUND FUND COMPLEX*
-------------- ---------------------- ----------------------------
<S> <C> <C>
Murray Stahl,
Director $198 $198
-5-
<PAGE>
<CAPTION>
NAME, POSITION AGGREGATE COMPENSATION TOTAL COMPENSATION PAID FROM
WITH FUND FROM FUND FUND COMPLEX*
-------------- ---------------------- ----------------------------
<S> <C> <C>
Kathleen Campbell,**
Director $297 $297
Douglas Cohen,
Director $297 $297
*The Fund is the only fund in the fund complex.
**Fees paid during the period that Ms. Campbell was an Independent Director of the Fund.
</TABLE>
The executive officers of the Fund are Steven R. Samson, President; Lee W.
Schultheis, Vice President and Treasurer; and Brook B. Connell, Vice President
and Secretary.
THE BOARD OF DIRECTORS RECOMMEND THAT
STOCKHOLDERS VOTE FOR THE ELECTION OF THE NOMINEES
FOR DIRECTORS.
INFORMATION ABOUT THE ADVISER
Kinetics Asset Management, Inc. currently serves as the investment adviser
to the Fund. The Adviser is a New York corporation and its principal offices are
located at 344 Van Buren Street, North Babylon, New York 11704. The Directors of
the Adviser are Margaret J. Doyle, Peter B. Doyle and B. Paul Abel. The officers
of the Adviser are Peter B. Doyle, Chairman of the Board of Directors, Steven R.
Samson, President and Chief Executive Officer and Lee W. Schutheis, Managing
Director and Chief Operating Officer.
The names and addresses of the Stockholders of the Adviser who own
ten (10%) percent or more of its outstanding shares are as follows:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND OTHER
BUSINESS EXPERIENCE DURING THE PERCENTAGE OWNERSHIP
NAME AND ADDRESS PAST FIVE (5) YEARS OF KINETICS
- ---------------- ------------------------------ --------------------
<S> <C> <C>
FRANK COSTA Retired School Board President; 15%
344 Van Buren Street Kinetics Asset Management, Inc.
North Babylon, NY 11704 (Vice President).
-6-
<PAGE>
<CAPTION>
PRINCIPAL OCCUPATION AND OTHER
BUSINESS EXPERIENCE DURING THE PERCENTAGE OWNERSHIP
NAME AND ADDRESS PAST FIVE (5) YEARS OF KINETICS
- ---------------- ------------------------------ --------------------
<S> <C> <C>
KAREN DOYLE Homemaker. 25%
54 1/2 Fremont Road
Sleepy Hollow, NY 10591
MARGARET J. DOYLE Kinetics Asset Management, Inc. 15%
344 Van Buren Street (President); The Internet Fund, Inc.
North Babylon, NY 11704 (President); and North Babylon
UFSD (Retired Superintendent).
LEONID POLYAKOV Vice President, J.P. Morgan Invest- 25%
5 Club Court ment Inc.
Pleasantville, NY 10570
</TABLE>
The Adviser provides investment advisory services to the Fund pursuant
to an investment advisory agreement dated April 5, 1996 (the "Advisory
Agreement"). The Advisory Agreement was submitted for shareholder approval at
the Annual Meeting of Shareholders held on April 5, 1996 and was last continued
by a vote of the Board of Directors, including a majority of the Independent
Directors, at a meeting duly held on February 18, 1999. Under the terms of the
Advisory Agreement, the Adviser provides the Fund with advice and
recommendations with respect to investments, investment policies, the purchase
and sale of securities and other investments, and the management of the Fund's
resources.
As compensation for the services that the Adviser provides under the
Advisory Agreement, the Fund pays the Adviser monthly compensation at the annual
rate of one and one-quarter (1.25%) percent of the average daily net assets of
the Fund. For the Fund's year ended December 31, 1998, the Adviser received
advisory fees from the Fund totaling $38,561. The Fund does not place any of its
portfolio transactions through brokers affiliated with the Adviser or the Fund.
The Adviser also serves as the Fund's co-administrator pursuant to a
Co-Administration Agreement dated July 19, 1999. In addition to the compensation
the Adviser receives under the Advisory Agreement with the Fund, the Adviser
receives an annual administration fee equal to 0.15% of the Fund's average daily
net assets, of which it pays a portion of such fees to Firstar Mutual Fund
Services, LLC for certain sub-administrative services Firstar renders to the
Fund. The Fund also entered into a Shareholder Servicing Agreement with the
Adviser on July 19, 1999, pursuant to which it pays the Adviser shareholder
servicing fees in an amount equal to 0.25% of the Fund's average daily net
assets. The Adviser is responsible for paying a portion of these shareholder
servicing fees to shareholder servicing agents which have a written shareholder
servicing agreement
-7-
<PAGE>
with the Adviser and which perform shareholder servicing functions and
maintenance of shareholder accounts on behalf of their clients who own shares of
the Fund.
Effective July 19, 1999, the Adviser voluntarily agreed to limit the
Fund's annual Fund operating expenses so as not to exceed two (2.00%) percent,
on an annualized basis, of the Fund's average daily net assets for the year
ending December 31, 1999. As of the date of this Proxy Statement, the Adviser
has not stated its intentions with respect to this expense limitation for the
year ending December 31, 2000.
PROPOSAL 2 -- APPROVAL OF THE REORGANIZATION OF
THE FUND FROM A NEW YORK CORPORATION INTO
A SERIES OF A MARYLAND CORPORATION
The Board has approved an Agreement and Plan of Reorganization (the
"Plan") substantially in the form attached to this Proxy Statement as Exhibit A.
The plan provides for a reorganization (a "Reorganization") pursuant to which
the Fund will change its state and form of organization from a New York
corporation to a series of Kinetics Mutual Funds, Inc., a Maryland corporation.
The proposed Reorganization will have no impact on the portfolio management or
operation of the Fund.
Under the Reorganization, the Fund will be reorganized as a series of
Kinetics Mutual Funds, Inc., a Maryland corporation, that will carry on the
business of the Fund. The Fund in its New York corporate form may be referred to
in this Proposal as the "Current Fund" and its outstanding shares as "Current
Shares". The newly created series of the Maryland corporation is referred to in
this Proposal as the "New Fund". The shares of the New Fund are referred to in
this Proposal as the "New Shares".
Under the Reorganization, the investment objectives of the New Fund
will be the same as those of the Current Fund, the portfolio securities of the
Current Fund will be transferred to the New Fund, and stockholders will own
interests in the New Fund that are equivalent to their interests in the Current
Fund on the closing date of the Reorganization. The Directors, officers and
employees of the Current Fund on the effective date of the Reorganization will
become the Directors, officers and employees of the corresponding New Fund,
respectively, and will operate the New Fund in the same manner as they
previously operated the Current Fund. In essence, a stockholder's investment in
the Current Fund will not change for all practical purposes.
BACKGROUND AND REASONS FOR THE REORGANIZATIONS
The Board unanimously recommends the conversion of the Current Fund to
a series of Kinetics Mutual Funds, Inc., a Maryland corporation, because it has
determined that the Maryland corporate form of organization provides certain
administrative advantages to the Fund. Specifically, Maryland corporate law
contains provisions specifically designed for mutual funds, that take into
-8-
<PAGE>
account their unique structure and operations, and allow mutual funds to
simplify their operations by reducing administrative burdens to generally
operate more efficiently. For example, unlike a New York corporation, mutual
funds organized as Maryland corporations are not required to hold annual
stockholders' meetings if meetings are not otherwise required by the federal
securities laws, the charter or bylaws, and such funds may create new classes or
series of stock without having to obtain the approval of stockholders at a
meeting. Another advantage that is afforded to a mutual fund organized as a
Maryland corporation is that there is a well established body of corporate
precedent which may be relevant in deciding issues pertaining to the Fund.
For these reasons, the Board believes it is in the interest of the
stockholders of the Current Fund to reorganize the Current Fund into a series of
a Maryland corporation. However, the Board reserves the right to abandon the
Reorganization if it determines that such action is in the best interest of the
Current Fund.
CONSEQUENCES AND PROCEDURES OF THE REORGANIZATION
Upon consummation of the Reorganization, the New Fund will continue the
Current Fund's business with the same investment objectives, policies and
restrictions that are in effect for the Current Fund at the time of the
consummation of the Reorganization (see the discussion under "Investment
Policies and Restrictions" below). The net asset value of the shares of the Fund
will not be affected by the Reorganization. The New Fund has been organized
specifically for the purpose of effecting the Reorganization. Immediately prior
to the Effective Date of the Reorganization (as defined in the Plan), the New
Fund will have only one (1) share of the New Shares outstanding. The Current
Fund will be the sole holder of the share of such stock. The Plan contemplates
that the Directors serving at the time of the Reorganization will serve as
Directors of the New Fund, with comparable responsibilities, if the stockholders
give their requisite approval at the meeting. The officers of the Current Fund
will become officers of the New Fund with comparable responsibilities. The
Reorganization will not result in the recognition of income, gain or loss for
Federal income tax purposes to the Current Fund, the New Fund, or the holders of
shares of the Current Fund.
To accomplish the Reorganization, the Plan provides that the Current
Fund will transfer all of its assets, subject to its related liabilities, to the
New Fund. The New Fund will establish an account for each stockholder and will
credit to that account the exact number of full and fractional shares of the New
Shares that such stockholder previously held of the Current Shares on the
Effective Date of the Reorganization. Each stockholder will retain the right to
any declared but undistributed dividends or other distributions payable on the
shares of the Current Fund that he or she owned. On the date of the
Reorganization, the net asset value per share of each Current Share will be the
same as the net asset value per share of the New Share. The New Fund will assume
all liabilities and obligations of the Current Fund. As soon as practicable
after the Effective Date of the Reorganization, the Current Fund will be merged
with and into the New Fund.
-9-
<PAGE>
The Plan provides that the Effective Date of the Reorganization will be
the next business day after the later of the satisfaction of all conditions
precedent to the Reorganization, as set forth in the Plan, and the final
adjournment of the Annual Meeting of Stockholders of the Current Fund at which
the Plan will be considered. The Plan may be terminated and the Reorganization
abandoned at any time prior to the Effective Date of the Reorganization by the
Board. If the Reorganization is not so approved or if the members of the Board
determine to terminate or abandon the Reorganization, the Current Fund will
continue to operate as a New York corporation.
CAPITALIZATION AND STRUCTURE
The Current Fund was organized as a New York corporation pursuant to a
Certificate of Incorporation filed with the New York State Department of State
on March 12, 1996. It has 50,000,000 shares authorized, par value $.001. An
increase from 10,000,000 to 50,000,000 authorized shares was approved at a
Special Meeting of Shareholders on March 29, 1999. Kinetics Mutual Funds, Inc.
(formerly, The Medical Fund, Inc. and, thereafter, The Medical Fund and The Cure
For Cancer, Inc.) was organized as a Maryland corporation pursuant to its
Articles of Incorporation initially filed with the State of Maryland Department
of State on March 26, 1999, as amended and restated on August __, 1999, and has
authorized capitalization of 2,000,000,000 shares of common stock, par value
$0.01 per share. The Board of Directors of Kinetics Mutual Funds, Inc. has the
power to designate one (1) or more classes and series of shares of common stock
and to classify and reclassify any unissued shares with respect to each class
and series. As of the date of this Proxy Statement, 100 million shares of common
stock have been designated for the New Fund and 100 million shares of common
stock have been designated for The Cancer Research Investment Fund, the initial
series of Kinetics Mutual Funds, Inc.
The New Shares have the same dividend, redemption, voting, exchange and
liquidation rights, and terms of conversion as the corresponding Current Shares.
The Current Shares and the corresponding New Shares are fully paid,
non-assessable and freely transferrable and have no preemptive or subscription
rights.
Prior to the Reorganization, the New Fund will have nominal assets and
no liabilities. The sole stockholder of the New Fund will be the Current Fund.
The New Fund will have the same investment objectives and policies as the
Current Fund and will have the same fiscal year as the Current Fund.
Subsequent to the closing of the Reorganization, the Current Shares
will be exchanged for an identical number of the New Shares. Thereafter, the New
Shares will be available for issuance at their net asset value applicable at the
time of sale. The New Fund will adopt the Current Fund's existing registration
statement under the 1940 Act and the Securities Act of 1933.
-10-
<PAGE>
EFFECTS OF STOCKHOLDER APPROVAL OF THE REORGANIZATION
An investment company registered under the 1940 Act is required to: (1)
submit the selection of the company's independent accountants to all
stockholders for their ratification; (2) call a special meeting to elect
directors within sixty (60) days if, at any time, less than one-half (1/2) of
the directors holding office have been elected by all stockholders; (3) submit
any proposed investment management agreement relating to the investment company
to the stockholders of that investment company for approval; and (4) submit any
proposed Rule 12b-1 Distribution and Service Plan to the stockholders of that
investment company for approval.
The Board believes that it is in the best interest of the stockholders
of the Current Fund (who will become the stockholders of the New Fund if the
Reorganization is approved) to avoid the considerable expense of another
stockholders' meeting to obtain certain of the stockholder approvals described
above shortly after the closing of the Reorganization. The Board also believes
that it is not in the best interest of the stockholders to carry out the
Reorganization if the surviving New Fund would not have a Board, independent
auditors and an investment management agreement complying with the 1940 Act.
The Board will, therefore, consider approval of the Reorganization by
the requisite vote of the stockholders of the Current Fund to constitute the
approval of the Plan contained in Exhibit A, and will also constitute, for the
purposes of the 1940 Act; (1) ratification of the selection of the independent
accountants; (2) election of the Directors of the Current Fund who are in office
at the time of the Reorganization as the Directors of the New Fund after the
closing of the Reorganization (please see Proposal 1); (3) stockholder approval
of the Advisory Agreement between the New Fund and the Adviser, which Advisory
Agreement is substantially identical to the Advisory Agreement that is in place
between the Current Fund and the Adviser; (4) stockholder approval of the
adoption of the Master-Feeder Fund Structure; and (5) stockholder approval of
the change to permit the Fund to be a non-diversified investment company, each
as of the Effective Date of the Reorganization.
The New Fund will issue a single share of stock of the New Shares to
the Current Fund, and, assuming approval of the Reorganization by stockholders
of the Current Fund, the officers of the Current Fund, prior to the
Reorganization, will cause the Current Fund, as the sole stockholder of the New
Fund, to vote such shares "FOR" the matters specified in the above paragraph.
The Current Fund will then consider the requirements of the 1940 Act referred to
above to have been satisfied.
The mailing address and telephone number of the principal executive
officer of the New Fund are 477 Madison Avenue, New York, New York 10022, and
1-212-644-3040.
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
It is anticipated that the transactions contemplated by the Plan will
be tax free for Federal income tax purposes. Under the Internal Revenue Code of
1986, as amended (the "Internal Revenue
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Code"), the exchange of assets of the Current Fund for the shares of the
corresponding New Fund, the transfer of such shares to the holders of shares of
the Current Fund and the merger of the Current Fund with and into the New Fund
pursuant to the Plan will not give rise to the recognition of a gain or loss for
Federal income tax purposes to the Current Fund, the New Fund or stockholders of
the Current Fund or the New Fund. A stockholder's adjusted basis for tax
purposes in the shares of the New Fund after the exchange and transfer will be
the same as his or her adjusted basis for tax purposes in the shares of the
Current Fund immediately before the exchange. Each stockholder should consult
his or her own tax adviser with respect to the details of these tax consequences
and with respect to state and local tax consequences of the proposed
transaction.
REQUESTS FOR REDEMPTION OF SHARES
Any request to redeem shares of the Current Fund that is received and
processed prior to the Reorganization will be treated as a redemption of shares
of the Current Fund. Any request to redeem shares of the Current Fund received
or processed after the Reorganization will be treated as a request for the
redemption of shares of the New Fund.
EXPENSES OF THE REORGANIZATION
Because the Reorganization will benefit solely the Current Fund and its
stockholders, the Board has authorized that the expenses incurred by the Current
Fund in the Reorganization or arising out of the Reorganization shall be paid by
the Current Fund, whether or not the Reorganization is approved by the
stockholders.
COMPARISON OF LEGAL STRUCTURES
SUMMARY OF THE ARTICLES OF INCORPORATION AND BY-LAWS OF
KINETICS MUTUAL FUNDS, INC.
The New Fund has been formed as a series of Kinetics Mutual Funds,
Inc., a Maryland corporation pursuant to the Plan and is governed by the
Articles of Incorporation and By-Laws of KMF and applicable Maryland law, rather
than by the Current Fund's Certificate of Incorporation and By-Laws and New York
law. The operations of the New Fund will be subject to the provisions of the
1940 Act, the rules and regulations of the SEC thereunder and applicable
Maryland securities law. Under Maryland law, the power to adopt, alter and
repeal the By-Laws is vested in the stockholders, except to the extent that the
Articles and By-Laws vest such power in the Board of Directors.
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DIRECTORS OF THE NEW FUND.
Subject to the provisions of the KMF Articles, the operations of the
New Fund are supervised by the Board of Directors of KMF. The responsibilities,
powers and fiduciary duties of the Directors of the New Fund will be
substantially the same as those of the Directors of the Current Fund. Under New
York law, a director may be removed with cause, and, if so provided for in the
articles or by-laws, without cause, by a vote of the stockholders. Under
Maryland law, a director may be removed with or without cause only by the
affirmative vote of a majority of shares entitled to vote for the election of
directors.
SERIES OF MARYLAND CORPORATIONS AND NEW YORK CORPORATIONS.
Maryland law permits Maryland corporations to create one or more series
of shares of common stock, and, with respect to each series, to issue a fixed
number of authorized shares for that series and specified in the corporation's
articles of incorporation. Each share of a series of a Maryland corporation,
like each share of a series of a New York corporation, represents an equal
proportionate interest with each other share in that series, none having a
priority or preference over another.
LIABILITIES OF STOCKHOLDERS IN MARYLAND AND NEW YORK
Stockholders of a Maryland corporation currently have no personal
liability for the corporation's acts or obligations, except that a stockholder
may be liable to the extent that: (i) the dividends he or she receives exceed
the amount which properly could have been paid under Maryland law, (ii) the
consideration paid by the Maryland corporation for his or her stock was paid in
violation of Maryland law; or (iii) he or she otherwise receives any
distribution, payment or release which exceeds the amount which he or she could
properly receive under Maryland law. Similarly, stockholders of a New York
corporation are generally not liable for the corporation's acts and obligations,
except that a stockholder may be liable upon a finding by a court of law or
equity that the assignment of such liability, commonly referred to as the
"piercing of the corporate veil", is necessary to prevent fraud or achieve
equity. However, in New York, piercing the corporate veil requires a showing
that the stockholders of a corporation exercised complete domination of the
corporation with respect to the transaction attacked and that such domination
was used to commit a fraud or wrong against the corporation which resulted in
injury to the corporation.
LIABILITY OF DIRECTORS IN NEW YORK AND MARYLAND
New York law and Maryland law each provide that in addition to any
other liability imposed by law, the directors of a Maryland corporation may be
liable to a Maryland corporation: (i) for voting or assenting to certain
distributions of assets to stockholders which is contrary to Maryland
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law, (ii) for voting or assenting to certain distributions of assets to
stockholders during liquidation of the corporation, and (iii) for voting or
assenting to a repurchase of shares of a Maryland corporation in violation of
Maryland law. In the event of any litigation against the directors of a Maryland
corporation, Maryland law permits that corporation to indemnify a director or
officer for certain expenses and to advance money for such expenses only if he
or she demonstrates that he or she acted in good faith and reasonably believed
that his or her conduct was in the best interests of the corporation. In
addition, the articles of incorporation of a Maryland corporation may limit the
personal liability of directors and officers to the corporation and its
stockholders for monetary damages, except to the extent that a judgment or other
final adjudication adverse to the director or officer in a proceeding based on a
finding in the proceeding that the director's or officer's action, or failure to
act, was the result of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office.
STOCKHOLDERS VOTING RIGHTS IN NEW YORK AND MARYLAND
New York law requires that an annual meeting of the shareholders be
held annually for the election of directors and the transaction of other
business on a date fixed by or under the by-laws. However a failure to hold the
annual meeting on the date so fixed or to elect a sufficient number of directors
to conduct the business of the corporation does not work a forfeiture or give
cause for dissolution of the corporation, except in cases of a petition in case
of a deadlock among directors or shareholders. Maryland law provides that
Maryland corporations need not hold annual meetings on the condition that that
the corporation's articles of incorporation or by-laws so provide.
RIGHT OF INSPECTION
Both Maryland and New York law provide that persons who have been
stockholders of record for six (6) months or more or who own at least five (5%)
percent of the shares of a Maryland corporation may inspect the books of account
and stock ledger of that Maryland corporation for any legitimate business
purpose.
The foregoing is only a summary of certain of the differences between
New York law and Maryland law as each above-described item relates to the
stockholders of the Current Fund. It is not a complete list of differences.
Stockholders should refer to the relevant provisions of Maryland law and New
York law directly for a more thorough comparison.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THE PROPOSAL.
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PROPOSAL 3 -- APPROVAL OF A NEW FUNDAMENTAL
INVESTMENT POLICY PERMITTING THE FUND TO
CONVERT TO A MASTER-FEEDER FUND STRUCTURE AND
INVEST ALL OF ITS INVESTABLE ASSETS
IN ANOTHER INVESTMENT COMPANY
INTRODUCTION - MASTER-FEEDER FUND STRUCTURE
At a meeting held on July 19, 1999, the Board considered and approved,
subject to shareholder approval, the adoption of a new fundamental investment
policy with respect to the Fund which would allow the Fund to convert to a
Master-Feeder Fund Structure. The Master-Feeder Fund Structure is an arrangement
that allows several investment companies with different shareholder related
features or distribution channels, but having substantially identical investment
objectives, policies and restrictions, to combine their investments by investing
all of their assets in the same portfolio instead of managing them separately,
which may result in economies of scale.
There is no present intention to convert the Fund to a Master-Feeder
Fund Structure. In adopting this new fundamental investment policy, the Fund
would be given the flexibility to convert to a Master-Feeder Fund Structure and
pursue investment opportunities consistent with its investment objective with
the approval of the Board, without the requirement of submitting such matter to
a vote of shareholders, which is a time-consuming and expensive process. The
Board will consider and evaluate specific proposals prior to the implementation
of any conversion to a Master- Feeder Fund Structure. The Fund's prospectus and
statement of additional information would be amended to reflect the
implementation of the Fund's conversion to a Master-Feeder Fund Structure and
its shareholders would be notified.
Under a Master-Feeder Fund Structure, the Fund will have the ability to
invest all of its investable assets in another investment company (the "Master
Portfolio") having substantially identical investment objectives and policies as
the Fund in exchange for shares of beneficial interest in the Master Portfolio.
This could mean that the only investment securities that will be held by the
Fund will be the Fund's interest in the Master Portfolio. Each Master Portfolio
will be a series of an investment company ("Master Trust"), as the Fund will be
a series of Kinetics Mutual Funds, Inc., a Maryland corporation, provided that
Proposal 1 is approved by the Fund's stockholders at this Annual Meeting.
Conversion to a Master-Feeder Fund Structure may serve to attract other
collective investment vehicles with different shareholder servicing or
distribution arrangements and with shareholders that would not have invested in
the Fund. In this event, additional assets may allow for operating expenses to
be spread over a larger asset base. In addition, a Master-Feeder Fund Structure
may serve as an alternative for large, institutional investors in the Fund who
may prefer to offer separate, proprietary investment vehicles and who otherwise
might establish such vehicles outside of the Fund's current operational
structure. Conversion to a Master-Feeder Fund Structure may allow
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the Fund to stabilize its expenses and achieve certain operational efficiencies.
No assurance can be given, however, that the Master-Feeder Fund Structure will
result in the Fund stabilizing its expenses or achieving greater operational
efficiencies.
NEW INVESTMENT POLICY
The Board has approved with respect to the Fund, subject to shareholder
approval, the adoption of a new fundamental investment policy that would permit
the Fund to convert to the Master-Feeder Fund Structure by investing all or a
part of its assets in another appropriate investment fund. As discussed above
under "Introduction - Master-Feeder Fund Structure", the purpose of this
Proposal is to allow the Fund to enhance its flexibility and permit it to take
advantage of potential efficiencies available through investment of all or a
part of its assets in another investment company. At present, certain of the
fundamental investment restrictions of the Fund, such as those limiting
investment in a single issuer, may prevent it from investing all or a part of
its assets in another registered investment company. The Board proposed that
these restrictions be modified by adding the following fundamental investment
policy:
Notwithstanding any other investment policy or restriction,
the Fund may seek to achieve its investment objective by
investing all of its investable assets in another investment
company having substantially identical investment objective
and policies as the Fund.
The Fund's methods of operation and shareholder services would not be
materially affected by its investment in a corresponding Master Portfolio,
except that the assets of the Fund may be managed as part of a larger pool. If
the Fund invested all of its assets in a Master Portfolio, it would hold only
beneficial interests in the Master Portfolio; the Master Portfolio would
directly invest in individual securities of other issuers. The Fund would
otherwise continue its normal operation. The Board would retain the right to
withdraw the Fund's investment from its corresponding Master Portfolio at any
time it determines that it would be in the best interest of shareholders; the
Fund would then resume investing directly in individual securities of other
issuers or invest in another Master Portfolio.
ADDITIONAL INFORMATION REGARDING THE MASTER PORTFOLIO
The Master Portfolio would be a series of a Master Trust which, like
the Fund, would be an open-end management investment company registered under
the 1940 Act. It is expected that the Master Trust would have one series to
correspond to each series of the Maryland corporation that converts to the
Master-Feeder Fund Structure. The investment objective and policies of each
Master Portfolio would be substantially the same as those of its corresponding
Fund; in seeking to achieve the same objective as the Fund, the Master Portfolio
would invest in the same type of securities and
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engage in the same transactions permitted by the investment policies and
restrictions of such corresponding Fund.
The Adviser would continue to be the investment adviser of the Fund's
corresponding Master Portfolio. Entities that currently perform services with
respect to the Fund, such as administrative or custodial services, would perform
substantially similar services for each Master Portfolio.
The Master Portfolio normally would not hold meetings of investors
except as required under the 1940 Act. As an investor in the Master Portfolio,
the Fund would be entitled to vote in proportion to its relative interest in the
Master Portfolio. As to any issue on which Fund shareholders vote, the Fund
would vote its interest in the Master Portfolio in proportion to the votes cast
by its shareholders. If there were other investors in the Master Portfolio,
there could be no assurance that any issue that receives a majority of the votes
cast by the Fund's shareholders would receive a majority of votes cast by all
Master Portfolio shareholders.
Changing a fundamental policy of a Master Portfolio would require
approval of the holders of a majority of interests in the Master Portfolio. The
Board of Trustees of the Master Trust would have the ability to change
non-fundamental policies without prior interest holder approval.
In addition to a vote to change a fundamental policy, examples of
matters that would require approval of shareholders of the Master Trust include,
subject to applicable statutory and regulatory requirements: the election of
Trustees; approval of an investment advisory contract; certain amendments to the
Trust Instrument of the Master Trust; a merger, consolidation or sale of
substantially all of a Master Portfolio's assets; or any additional matters
required or authorized by the Trust Instrument of the Master Trust or any
registration statement of the Master Trust, or as the Trustees may consider
desirable.
Generally, the Fund would hold a meeting of its shareholders to obtain
instructions on how to vote its interest in the Master Portfolio when the Master
Portfolio is conducting a meeting of its shareholders. However, subject to
applicable statutory and regulatory requirements, the Fund would not seek
instructions from its shareholders with respect to (i) any proposal relating to
the Master Portfolio which, if made with respect to the Fund, would not require
the vote of Fund shareholders, or (ii) any proposal relating to the Master
Portfolio that is identical in all material respects to a proposal previously
approved by the Fund's shareholders.
Examples of proposals with respect to a Master Portfolio that may not
require the approval of shareholders of its corresponding Fund would include the
following, subject to applicable statutory and regulatory requirements: (i)
approval of an Advisory Agreement with an affiliate of the Adviser on terms that
do not differ in any material respect from an Advisory Agreement currently in
effect with respect to that Fund; (ii) election of Trustees of the Master Trust
who had previously been elected as Trustees of the Trust; and (iii) selection,
or ratification of the selection of, a firm of independent certified public
accountants that had previously been approved by the shareholders of the Fund.
Examples of matters that would be submitted to shareholders of a Master
Portfolio's
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corresponding Fund would include the following: (i) approval of an Advisory
Agreement with an investment adviser other than the Adviser, or its successor
affiliate, or one that provided for compensation in excess of the amount of
compensation payable to the Adviser pursuant to the Advisory Agreement in effect
with respect to the Fund, (ii) election when required by the 1940 Act of
Trustees of the Master Trust who had not previously been elected by shareholders
as Trustees of the Trust, or (iii) selection of, or the ratification of the
selection of, a firm of independent certified public accountants that had not
previously been approved by the shareholders of the Fund. Any proposal submitted
to holders in a Master Portfolio, and that is not required to be voted on by
shareholders of that Master Portfolio's corresponding Fund, would nonetheless be
voted on by the Trustees of the Trust.
The Master Trust's operations would be governed by its Trust instrument
and applicable law. The operations of the Master Trust and the Master
Portfolios, like those of the Trust and the Funds, would be subject to the
provisions of the 1940 Act and the rules and regulations of the SEC thereunder
and applicable state securities laws.
TRUSTEES AND OFFICERS OF THE MASTER TRUST
The initial interest holders of the Master Trust would be expected to
elect as Trustees of the Master Trust, the individuals serving as members of the
Board of Directors of the Fund. See Proposal 1. Subject to the provisions of its
Trust Instrument, the business of the Master Trust would be supervised by its
Trustees, who would serve indefinite terms and who would have all powers
necessary or convenient to carry out their responsibilities. The Trustees of the
Master Trust would elect officers of the Master Trust whom they deemed
appropriate.
TAX CONSEQUENCES OF INVESTMENT IN A MASTER PORTFOLIO
The Trust would apply for a ruling from the Internal Revenue Service
("IRS") or would obtain an opinion of the tax counsel to the effect that its
contribution of assets of the Fund to its corresponding Master Portfolio in
exchange for an interest in that Master Portfolio would not result in the
recognition of gain or loss to the Fund for Federal income tax purposes.
It is intended that the Fund would continue to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986. In
each taxable year that the Fund so qualified, the Fund (but not its
shareholders) would be relieved of Federal income tax on that part of its
investment company taxable income and net capital gain that is distributed to
its shareholders. Neither the Fund nor the Master Portfolio would be expected to
be required to pay any Federal income or excise taxes. Distributions from the
Fund, except for distributions from the Fund designated as long-term capital
gain distributions, would continue to be taxable to its shareholders as ordinary
income, whether received in cash or reinvested in Fund shares.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
PROPOSAL 4 -- APPROVAL TO PERMIT THE FUND
TO CHANGE TO A NON-DIVERSIFIED INVESTMENT COMPANY
The Board has considered and approved a recommendation of the Adviser,
subject to shareholder approval, to change the status of the Fund under the 1940
Act from a "diversified" investment company to a "non-diversified" investment
company. As a "diversified" investment company under the 1940 Act, the Fund is
currently prohibited from purchasing the securities of any issuer (other than
securities issued or guaranteed by the U.S. government, its agencies and
instrumentalities), if, as a result, as to seventy-five (75%) percent of the
Fund's total assets, more than five (5%) percent of its net assets would be
invested in the securities of one (1) issuer or the Fund would hold more than
ten (10%) percent of the outstanding voting securities of any one issuer. As a
"non-diversified" investment company, the restrictions on concentrating the
Fund's assets in any one issuer and holding the outstanding securities or voting
securities of an issuer would be relaxed and the Fund would be permitted to
invest fifty (50%) percent of the Fund's assets in two or more stocks while the
other half is spread out among various investments not exceeding five (5%)
percent of the Fund's total assets.
The Board has approved the Adviser's recommendation to change the
status of the Fund to "non-diversified" under the 1940 Act because the Board and
the Adviser believe such a change to be necessary for the effective management
of the Fund. The Fund invests in equity or equity-linked securities of companies
engaged in the Internet and Internet-related activities. The securities of
issuers in the Internet sector tend to be more volatile than securities of
issuers in other industries and competitive pressures and changing demand may
have a significant effect on the financial condition of Internet companies. Due
to the especially high market volatility of issuers primarily engaged in the
Internet or Internet-related businesses, the widespread proliferation of
publicly-traded but highly over-valued issuers and the increased uncertainty
with respect to the fundamental investment value of a large percentage of these
issuers, the Adviser believes that, from time to time, it may be prudent to
concentrate the Fund's assets in the securities of stronger, larger capitalized
and financially sound issuers which demonstrate fundamental investment value in
accordance with the Fund's investment objective. As a "diversified" fund, such
concentration may not be possible. To accomplish this objective, the third and
fourth fundamental investment restrictions currently set forth in the Fund's
Statement of Additional Information would be removed which would then allow the
Adviser added flexibility to react to adverse market conditions by permitting
divestiture of securities with declining market values for the purpose of
investing a greater percentage of the Fund's assets in more technically sound
and fundamentally viable investment opportunities. However, the risk of changing
the Fund to a non-diversified status is that the Fund's shares may be more
susceptible to sudden and significant losses if the value of these securities
decline.
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Notwithstanding the proposal to change the status of the Fund to a
"non-diversified" investment company under the 1940 Act, the Fund will continue
to qualify as a regulated investment company pursuant to Subchapter M of the
Internal Revenue Code of 1986, as amended. As a result, as to fifty (50%)
percent of the Fund's total assets no more than five (5%) percent of its net
assets may be invested in the securities of one (1) issuer and the Fund may hold
no more than ten (10%) percent of the outstanding voting securities of any one
(1) issuer.
For the reasons stated above, the Board believes that it is in the best
interest of the stockholders of the Fund to delete the third and fourth
fundamental investment restrictions as currently stated in the Statement of
Additional Information in order to change the status of the Fund under the 1940
Act from a "diversified" investment company to a "non-diversified" investment
company.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE "FOR" THIS PROPOSAL
PROPOSAL 5 -- RATIFICATION OF MCCURDY & ASSOCIATES
CPA'S, INC. AS THE FUND'S INDEPENDENT ACCOUNTANTS
The Board, including a majority of the Directors who are not Interested
Persons of the Fund, is recommending McCurdy & Associates CPA's, Inc. to serve
as independent accountants of the Fund for the fiscal year ending December 31,
1999, subject to the right of the Fund to terminate such employment immediately
without penalty by vote of a majority of the outstanding voting securities of
the Fund at any meeting called for such purpose. The Board's selection is hereby
submitted to the shareholders for ratification.
Lilling & Company LLP served as the independent accountants for the
Fund during its most recent year ended December 31, 1998. The Board has selected
the firm of McCurdy & Associates CPA's, Inc. as the Fund's independent
accountants for the year ending December 31, 1999. Services to be performed by
McCurdy & Associates CPA's, Inc. during the year ending December 31, 1999, will
include the audit of the financial statements of the Fund and services related
to filings of the Fund with the Securities and Exchange Commission. McCurdy &
Associates CPA's, Inc. has informed the Fund that neither McCurdy & Associates
CPA's, Inc. nor any of its partners has any direct or material indirect
financial interest in the Fund. Representatives of McCurdy & Associates CPA's,
Inc. are not expected to be present at the Annual Meeting but have been given
the opportunity to make a statement if they so desire, and will be available
should any matter arise requiring their participation.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS
THAT STOCKHOLDERS VOTE "FOR" THIS PROPOSAL.
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STOCKHOLDER PROPOSALS
Stockholders wishing to submit proposals for inclusion in a Proxy
Statement for a subsequent stockholders' meeting should send their written
proposals addressed to the Secretary of the Fund at 344 Van Buren, North
Babylon, New York 11704. Proposals must be received at a reasonable time prior
to the date of a meeting of shareholders to be considered for inclusion in the
materials for the Fund's meeting. Timely submissions of a proposal does not,
however, necessarily mean that such proposal will be included.
The financial statements included in the Annual Report to Stockholders
of the Fund for the year ended December 31, 1998 are incorporated by reference
in this Proxy Statement.
Dated: August 28, 1999 By Order of the Board of Directors
----------------------------------
Brooke B. Connell, Secretary
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made as of the day of
______, 1999, by and between THE INTERNET FUND, INC., a New York corporation
(the "Company"), on behalf of THE INTERNET FUND (the "Current Fund") and
KINETICS MUTUAL FUNDS, INC., a Maryland corporation (the "Corporation"), on
behalf of THE INTERNET FUND (the "New Fund").
In consideration of the mutual promises herein contained, the parties
hereto agree as follows:
1. APPROVAL BY SHAREHOLDERS
A meeting of the shareholders of the Current Fund shall be
called and held for the purpose of acting upon this Agreement and Plan of
Reorganization (the "Agreement") and the transactions contemplated herein.
2. PLAN OF REORGANIZATION
(a) On behalf of the Current Fund, the Company will convey,
transfer and deliver to the Corporation at the closing provided for in Section 3
(hereinafter called the "Closing") all of the Current Fund's then existing
assets, the assets belonging to the Current Fund to be conveyed, transferred and
delivered to the New Fund, a newly-formed series of the Corporation. In
consideration thereof, the Corporation agrees at the Closing (i) to assume and
pay, to the extent that they exist on or after the Effective Time of the
Reorganization (as defined in Section 3 hereof), all of the Current Fund's
obligations and liabilities, whether absolute, accrued, contingent or otherwise,
the obligations and liabilities of the Current Fund to become the obligations
and liabilities of the New Fund; and (ii) to deliver to the Current Fund full
and fractional shares of common stock of the New Fund, $0.001 par value (the
"Shares"), equal in number and type to the number and type of shares of common
stock of the Current Fund, no par value, outstanding immediately prior to the
Effective Time of the Reorganization.
(b) At the Effective Time of the Reorganization, the Company
will distribute pro rata to the shareholders of record of the Current Fund as of
the Effective Time of the Reorganization the Shares of the New Fund received by
the Current Fund pursuant to this Section 2. Each shareholder of record of the
Current Fund will receive a number and type of Shares of the New Fund equal to
the number and type of Shares of the Current Fund held at the Effective Time of
the Reorganization. Such distribution will be accompanied by the establishment
of an open account on the stock records of the Corporation in the name of each
such shareholder of the Current Fund and representing the number and type of
Shares due such shareholder. Certificates representing Shares will not be
issued.
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<PAGE>
(c) Prior to the Closing, all redemption requests received in
proper order and form will be aggregated and the total dollars to be paid out
resulting from the redemptions will be set aside by the Company's transfer
agent. After the Closing, the Corporation's transfer agent will honor all such
pre-Closing redemptions on behalf of the Company and its transfer agent.
(d) As soon as practicable after the Effective Time of the
Reorganization, the Company shall take all necessary steps under New York law to
effect a complete liquidation and dissolution of the Current Fund.
(e) The transactions contemplated herein are referred to as
the "Reorganization".
3. CLOSING AND EFFECTIVE TIME OF THE REORGANIZATION
With respect to the Current Fund, the Closing shall occur on
(a) the final adjournment of the meeting of shareholders of the Current Fund at
which this Agreement will be considered or (b) such later date as the parties
may mutually agree (the "Effective Time of the Reorganization").
4. CONDITIONS PRECEDENT
The obligations of the Company and the Corporation to
effectuate the Agreement hereunder shall be subject to the satisfaction of each
of the following conditions:
(a) Such authority, including "no-action" letters, and orders
from the Securities and Exchange Commission (the "Commission") and state
securities commissions, as may be necessary to permit the parties to carry out
the transactions contemplated by this Agreement shall have been received.
(b)(i) The Corporation's Registration Statement and any
amendments thereto, as may be deemed necessary and appropriate, prepared on Form
N-1A shall have been filed with the Commission under the Securities Act of 1933,
as amended, and the Investment Company Act of 1940, as amended (the "Act"); and
(ii) no stop-order suspending the effectiveness of the Registration Statement
shall have been issued, and no proceeding for that purpose shall have been
initiated or threatened by the Commission (and not withdrawn or terminated).
(c) Confirmation shall have been received from the Commission
or its staff that the Corporation, effective upon or before the Effective Time
of the Reorganization, shall be duly registered as an open-end management
investment company under the Act.
(d) Each party shall have been advised by Spitzer & Feldman
P.C., that for Federal income tax purposes: (i) the transfer by the Current Fund
of substantially all of its assets to the New Fund solely in exchange for the
Shares, as described above, is a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"); (ii)
no gain or loss is recognized by the Current Fund upon the transfer of
substantially all of its assets to the New Fund in exchange solely for the
Shares; (iii) no gain or loss is recognized by the
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<PAGE>
New Fund on receipt of the Current Fund assets in exchange for the New Fund
Shares; (iv) the basis of the assets of the Current Fund in the hands of the New
Fund is, in each instance, the same as the basis of those assets in the hands of
the Current Fund immediately prior to the transaction; (v) the holding period of
the Current Fund's assets in the hands of the New Fund includes the period
during which the assets were held by the Current Fund; (vi) no gain or loss is
recognized to the shareholders of the Current Fund upon the receipt of the New
Fund Shares solely in exchange for the Current Fund's shares; (vii) the basis of
the New Fund Shares received by the Current Fund shareholders is, in each
instance, the same as the basis of the Current Fund shares surrendered in
exchange therefor; and (viii) the holding period of the New Fund Shares received
by the Current Fund shareholders includes the holding period during which shares
of the Current Fund surrendered and exchanged therefor were held, provided that
such shares were held as a capital asset in the hands of the Current Fund
shareholders on the date of the exchange. Furthermore, notwithstanding anything
herein to the contrary, neither the New Fund nor the Current Fund may waive the
condition set forth in this paragraph Section 4(d).
(e) The Company shall have been advised by Spitzer & Feldman
P.C. that: (i) the Corporation is a duly registered, open-end, management
investment company, and its registration with the SEC as an investment company
under the 1940 Act is in full force and effect and the New Fund is a validly
established separate series of the Corporation; (ii) the Shares to be issued to
the Current Fund and then distributed to the shareholders of the Current Fund
pursuant to this Agreement are duly registered under the 1933 Act on the
appropriate form, and are duly authorized and upon such issuance will be validly
issued and outstanding, fully paid and non-assessable; (iii) to such counsel's
knowledge, no stop order suspending the effectiveness thereof has been issued
and no proceedings for that purpose have been instituted or are pending or
threatened; and (iv) such firm has participated in conference with officers and
other representatives of the Current Fund and the New Fund and the independent
public accountants for the Current Fund at which the contents of the proxy
statement of the Current Fund and the prospectus and statement of additional
information of the New Fund and related matters were discussed and, although
Spitzer & Feldman P.C. does not pass upon nor assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the proxy
statement, the prospectus of the New Fund or the statement of additional
information of the New Fund, no facts came to the firm's attention that would
lead it to believe that either the proxy statement, at the time such proxy
statement became effective and at the date hereof, contained an untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
prospectus and the statement of additional information of the New Fund, as of
its date and at the date hereof, contained an untrue statement of a material
fact or omitted to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(f) The Company has been advised that: (i) the Corporation is
a corporation duly created pursuant to its Articles of Incorporation, is validly
existing and in good standing under the laws of the State of Maryland, and the
Articles of Incorporation directs the Corporation's directors to manage the
affairs of the Corporation and grants them all powers necessary or desirable to
carry
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<PAGE>
out such responsibility, including administering the New Fund's business as
described in the current Prospectus of the New Fund; and (ii) this Agreement has
been duly authorized, executed and delivered by the Corporation on behalf of the
New Fund and, assuming due authorization, execution and delivery of this
Agreement on behalf of the New Fund, is a valid and binding obligation of the
Corporation, enforceable against the Corporation in accordance with its terms,
subject as to enforcement, to bankruptcy, insolvency, reorganization,
arrangement, moratorium and other similar laws of general applicability relating
to or affecting creditors' rights and to general equity principles.
(g) The Shares shall have been duly qualified for offering to
the public in such jurisdictions (except where such qualifications are not
required) so as to permit the transfers contemplated by this Agreement to be
consummated.
(h) With respect to the Current Fund, a vote approving this
Agreement and the Reorganization contemplated hereby, including a temporary
amendment of those of the Current Fund's investment restrictions that might
otherwise preclude the consummation of the Reorganization, and liquidation and
dissolution of the Current Fund, shall have been adopted by at least two-thirds
(2/3's) of the outstanding shares of common stock of the Current Fund entitled
to vote at an annual or special meeting.
(i) With respect to the New Fund, the Directors of the
Corporation shall have taken the following action at a meeting duly called for
such purposes:
(1) the approval of the Investment Advisory Agreement
between the Corporation on behalf of the New Fund, and
Kinetics Asset Management, Inc.;
(2) the approval of the Distribution Agreement
between the Corporation and _________________________;
(3) the ratification of the selection of McCurdy &
Associates CPAs, Inc. as independent certified public
accountants for the Corporation;
(4) the election of eight (8) directors for the
Corporation;
(5) the authorization of the issuance by the
Corporation prior to the Effective Time of the Reorganization,
of one or more Shares of the New Fund to the Current Fund in
consideration for the payment of $1.00 per Share for the
purpose of enabling the Current Fund to vote on the matters
referred to above in this Section 4;
(6) the submission of the matters referred to in
paragraph (j) of this Section 4 to the sole stockholder of the
New Fund; and
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<PAGE>
(7) the authorization of the issuance by the
Corporation of Shares at the Effective Time of the
Reorganization in exchange for the Current Fund's assets
pursuant to the terms and provisions of this Agreement.
(j) With respect to the Current Fund, the shareholders of the
Current Fund shall have voted to direct the Current Fund to vote, and the
Current Fund shall have voted, immediately after it becomes sole shareholder of
the New Fund, to approve all actions necessary to carry out the Plan of
Reorganization, including to;
(1)
(i) approve the selection of McCurdy &
Associates CPAs, Inc. as independent certified
public accountants for the Corporation; and
(ii) elect eight (8) directors for the Corporation.
(k) With respect to the Current Fund, the shareholders of the
Current Fund shall have voted to approve its reorganization into the New Fund.
At any time prior to the Closing for the Current Fund, any of
the foregoing conditions (other than the condition set forth in Section 4(d))
may be waived by the Board of Directors of the Company if, in the judgment of
such Board, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the shareholders of the Current Fund.
(l) The Company shall have received a letter from McCurdy &
Associates, CPAs, Inc. addressed to the Company substantially to the effect that
the transfer of any unamortized organization cost currently recorded on the
books of the Current Fund to the New Fund is in compliance with Generally
Accepted Accounting Principles and does not violate (i) any federal securities
law and (ii) any rule and regulation of the Commission.
(m) All accrued and unpaid expenses of the Current Fund,
including all administrative, legal and other expenses owed by the Current Fund
or Kinetics Asset Management, Inc. to the Company or its agents shall, to the
extent necessary, have been paid in full.
5. EXPENSES
The expenses of entering into and carrying out the provisions
of this Agreement and the Reorganization and the proxy solicitation contemplated
herein will be borne equally by the Current Fund and the New Fund, whether or
not the Reorganization is consummated.
6. TERMINATION
With respect to the Current Fund and the New Fund, the Board
of Directors of the Company or the Board of Directors of the Corporation,
respectively, may terminate this Agreement and abandon the Reorganization
contemplated hereby, at any time prior thereto, notwithstanding
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<PAGE>
approval thereof by the shareholders of the Current Fund if, in the judgment of
such Boards, proceeding with the Agreement would be inadvisable.
7. ENTIRE AGREEMENT
This Agreement embodies the entire agreement between the
parties and there are no agreements, understandings, restrictions or warranties
among the parties other than those set forth herein or herein provided for.
Furthermore, after the Current Fund's shareholders have approved this Agreement,
no amendments may be made that materially adversely affect the interests of the
shareholders of the Current Fund unless such amendments are submitted for
shareholder approval.
8. FURTHER ASSURANCES
Each of the Company and the Corporation shall take such
further action as may be necessary or desirable and proper to consummate the
transactions contemplated hereby.
9. GOVERNING LAW
This Agreement and the transactions contemplated hereby shall be
governed by and construed and enforced in accordance with the laws of the State
of New York.
IN WITNESS WHEREOF, each of the Company and the Corporation has caused
this Agreement and Plan of Reorganization to be executed on its behalf by its
Chairman, President or a Vice President and attested by its Secretary or
Assistant Secretary, all as of the day and year first above written.
ATTEST: THE INTERNET FUND, INC.,
a New York corporation, on behalf of
The Internet Fund
______________________________
Secretary
By: ________________________________
ATTEST: KINETICS MUTUAL FUNDS, INC,
a Maryland corporation, on behalf of
The Internet Fund
______________________________
Secretary
By: _______________________________
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<PAGE>
PROXY - THE INTERNET FUND, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
OCTOBER 20, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints PETER B. DOYLE and STEVEN R. SAMSON and
each or any one of them (with powers of substitution), proxies for the
undersigned to vote all shares of Common Stock held of record on August 25,
1999, of THE INTERNET FUND, INC. (the "Corporation") which the undersigned would
be entitled to vote if personally present at the Annual Meeting of Shareholders
(the "Meeting") to be held at ________________________________ on October 20,
1999, and at any adjournment thereof, upon the matters set forth in the Notice
of and Proxy Statement for said Meeting, copies of which have been received by
the undersigned, and in their discretion, upon all other matters which may
properly come before said Meeting. Without otherwise limiting the generality of
the foregoing, said proxies are directed to vote as follows:
|X| PLEASE MARK YOUR VOTES
AS IN THIS EXAMPLE. FOR AGAINST ABSTAIN
1. Election of Directors: o o o
FOR, EXCEPT VOTE WITHHELD FROM THE
FOLLOWING NOMINEE(S):_____________________
Nominee(s) : JOSEPH E. BRESLIN
KATHLEEN CAMPBELL
DOUGLAS COHEN
WILLIAM J. GRAHAM
STEVEN T. RUSSELL
STEVEN R. SAMSON
MURRAY STAHL
JOHN J. SULLIVAN
2. To approve the reorganization of the Fund
as a series of Kinetics Mutual Funds, Inc.,
a Maryland corporation. o o o
3. To approve the adoption of the Master-Feeder
Fund Structure. o o o
4. To approve a change to permit the Fund to be
a non- diversified investment company. o o o
5. To ratify the selection of McCurdy &
Associates CPA's, Inc. as the Fund's
independent accountants. o o o
6. In their discretion to act upon such other
matters as may properly come before the
Annual Meeting or any adjournment thereof. o o o
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE SHAREHOLDER. IF NO SPECIFICATION IS MADE, THIS PROXY WILL BE VOTED IN
FAVOR OF THE ABOVE PROPOSALS.
Your proxy is important to assure a quorum at the Annual Meeting whether or not
you plan to attend the Meeting in person. You may revoke this proxy at any time,
and the giving of it will not effect your right to attend the Annual Meeting and
vote in person.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE.
SIGNATURE(S)_________________________DATE_____________
_________________________DATE_____________
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS. WHEN SHARES ARE HELD AS JOINT
TENANTS, BOTH SHOULD SIGN. WHEN SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. IF A CORPORATION, PLEASE
SIGN IN FULL CORPORATE NAME BY PRESIDENT OR OTHER AUTHORIZED OFFICER AND IF A
PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP NAME BY AUTHORIZED PERSON.
[NEED TO ADD INSTRUCTIONS REGARDING TELEPHONIC AND/OR INTERNET
VOTING.]
