SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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 Material Pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
The Internet Fund, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
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):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary proxy 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 the 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:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
819102.8
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THE INTERNET FUND, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Margaret B. Doyle and Francis J. Alexander, or either of them, with
power of substitution, are hereby appointed and authorized as proxies to
represent, and to vote the shares of common stock (the "Shares") of The Internet
Fund, Inc. (the "Fund") owned by the undersigned shareholder(s) at a Special
Meeting of Shareholders of the Fund to be held at 9:00 a.m. on May 19, 1999 at
344 Van Buren Street, North Babylon, New York 11704 and at any adjournment
thereof. The proxies are to vote the Shares of the undersigned as instructed
below and in accordance with their judgment on all other matters which may
properly come before the meeting. If no specification is made below, this proxy
shall be voted in favor of each listed proposal (including each nominee for
Director).
The Board of Directors recommends voting for Proposals 1,2, 3 and 4.
1. Election of Directors
Nominees: Francis J. Alexander; Ian Martin Dalziel; Dr. Marvin
Schiller and Dennis Tarzian.
For All Nominees ___ Withhold All Nominees ___ Withhold Those Listed Below _____
Instruction: To withhold authority to vote for any individual nominee,
please print his name below:
2. Approval of a new Investment Advisory Agreement between the Fund and
Lepercq, de Neuflize & Co. Incorporated:
For ____ Against _____ Abstain _____
3. Approval of a Rule 12b-1 Distribution and Service Plan; Shareholder
Servicing Agreement between the Fund and Lepercq, de Neuflize & Co.
Incorporated; and Distribution Agreement between the Fund and Lepercq,
de Neuflize Securities Inc. to serve as distributor of the Fund's
shares:
For ____ Against ____ Abstain _____
4. Approval of the reorganization of the Fund from a New York corporation
to a Maryland corporation:
For ____ Against ____ Abstain _____
---------------------------------
Signature
---------------------------------
Signature, if held jointly
Dated: , 1999
IMPORTANT! PLEASE SIGN AND RETURN PROMPTLY. When shares are held by
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. If a partnership, please sign in partnership name by an authorized
person.
819102.8
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THE INTERNET FUND, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON May 19, 1999
NOTICE IS HEREBY GIVEN that the Special Meeting of shareholders of
The Internet Fund, Inc. (the "Fund"), a registered investment company, will be
held at 344 Van Buren Street, North Babylon, New York 11704 on May 19, 1999, at
9:00 a.m. for the following purposes:
1) To elect a Board of Directors to serve until the next meeting
of shareholders called for the purpose of electing Directors
and/or until their successors are elected;
2) To consider and approve a new Investment Advisory Agreement
between Lepercq, de Neuflize & Co. Incorporated and the Fund;
3) To consider and approve a Rule 12b-1 Distribution and Service
Plan; Shareholder Servicing Agreement between the Fund and
Lepercq, de Neuflize & Co. Incorporated; and Distribution
Agreement between the Fund and Lepercq, de Neuflize Securities
Inc. as distributor of the Fund's shares; and
4) To consider and approve the reorganization of the Fund from a
New York corporation to a Maryland corporation.
At such meeting, only holders of common stock of record at the close
of business on April 1, 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.
YOUR PARTICIPATION, IN PERSON OR BY PROXY, IS IMPORTANT. BUSINESS MAY BE
TRANSACTED ONLY IF A MAJORITY OF THE SHARES ENTITLED TO VOTE ARE PRESENT
IN PERSON OR BY PROXY.
By Order of the Board of Directors
/s/Francis J. Alexander
-------------------------------
Francis J. Alexander, Secretary
__________ __, 1999
819102.8
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PRELIMINARY
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 Special
Meeting of shareholders (the "Special Meeting"), or any adjournment thereof, to
be held on May 19, 1999, at 9:00 a.m., at 344 Van Buren Street, North Babylon,
New York 11704. The Fund's investment adviser is Kinetics Asset Management,
Inc., located at 344 Van Buren Street, North Babylon, New York 11704. The Fund
currently acts as its own principal underwriter. The Fund's administrator is
Firstar Mutual Funds Services, LLC, located at 625 East Michigan Street,
Milwaukee, Wisconsin 53202. The Fund will furnish a copy of its annual report to
a shareholder without charge and within one day of the receipt of such request.
To request such a copy, a shareholder may write to: The Internet Fund, c/o
Firstar Mutual Fund Services, LLC, P.O. Box 701, Milwaukee, WI 53201-0701 or
call toll-free 888-386-3999. This proxy statement and the enclosed proxy card
are expected to be mailed on or about April 19, 1999, to shareholders of record
at the opening of business on April 1, 1999 (the "Record Date"). On the Record
Date, the Fund had outstanding _______ shares of common stock. The Fund issues
only common stock. Shareholders will be entitled to one 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 requires the affirmative
vote of a majority of shares present at the meeting either in person or by
proxy. The proposed agreement for investment advisory services between the Fund
and Lepercq, de Neuflize & Co. Incorporated ("Lepercq"), the Rule 12b-1
Distribution and Service Plan, the Distribution Agreement between the Fund and
Lepercq, de Neuflize Securities Inc. (the "Distributor") and the Shareholder
Servicing Agreement between the Fund and Lepercq 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 50% of the Fund's outstanding shares, or (b) 67% or more
of the shares present or represented in person or by proxy at the meeting, if
the holders of more than 50% 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 Maryland corporation requires the affirmative vote
of two-thirds of all outstanding shares entitled to vote.
All shares represented by properly executed proxies, unless such
proxies have been previously revoked, will be voted at the Special Meeting in
accordance with the directions on the proxies. A shareholder 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 cost of
soliciting proxies, which is estimated at $_______ is being paid by Kinetics
Asset Management, Inc. In addition to the solicitation by mail, officers of the
Fund may ask shareholders in personal conversations or by telephone or telecopy
to return proxies.
819102.8
1
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Ownership Of Shares
Officers and Directors of the Fund own less than 1% of the Fund's
outstanding shares.
Shareholders known by the Fund to own more than 5% of the outstanding
shares of the Fund on March 29, 1999, and the percentage of the outstanding
shares owned on that date are listed below.
Name of Shareholder and Amount of Shares Percentage of
Address Owned Outstanding Shares
- --------------------------------------------------------------------------------
National Financial Services 5,179,654 55.3%
Corp. (1)
200 Liberty Street
New York, NY 10281
National Investors Service 1,615,218 17.2%
Corp. (1)
55 Water Street
New York, New York 10041
(1) Indicates owner of record; the record owner 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.
PROPOSAL 1 - NOMINEES FOR ELECTION AS DIRECTORS
Our Directors are to be elected to serve on the Board of Directors of
the Fund (the "Board") until the next Annual Meeting of Shareholders and/or
until their successors have been elected and qualify for office. The nominees
are: Francis J. Alexander, Ian Martin Aalziel, Dr. Marvin Schiller and Dennis
Tarzian. The members of the Board of Directors during the fiscal year ended
December 31, 1998, and 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 years, and ownership of shares of the Fund.
819102.8
2
<PAGE>
<TABLE>
<CAPTION>
Current Board of Directors of the Fund
Number of Shares
Beneficially Owned &
Name (Age) Principal Occupation And Other Business Percent of Class as of
And Address Experience During The Past Five Years April 1, 1999
- ----------- ------------------------------------- -------------
<S> <C> <C>
Margaret B. Doyle* The Internet Fund, Inc., (President); and 573 and less than 1%
(Age) 70 North Babylon UFSD, (Retired Superintendent).
48 Game Cocklane
Babylon, NY 11702
Francis J. Alexander (1)* Lepercq, de Neuflize & Co. Incorporated, (1998- 226 and less than 1%
(Age) 52 Present), (1997-Present);
270 Greenwich Ave. The Internet Fund, Inc., (Vice President and
Greenwich, CT 06830 Portfolio Manager); and
Alexander Capital Management, Inc., (Portfolio
Manager).
Murray Stahl Horizon Asset Management, (President). 0 and 0%
(Age) 47
342 Madison Avenue
New York, NY 10017
Kathleen Campbell* Counselor-at-Law. 0 and 0%
(Age) 35
68 East Hartsdale Road
Hartsdale, NY 10530
Douglas Cohen Certified Public Accountant. 0 and 0%
(Age)
86 Samuel Street
Ronkonkoma, NY 11779
Nominees to Board of Directors of the Fund
Francis J. Alexander* (1) Lepercq, de Neuflize & Co. Incorporated, (1998- 226 and less than 1%
(Age) Present), (1997-Present);
270 Greenwich Ave. The Internet Fund, Inc., (Vice President and
Greenwich, CT 06830 Portfolio Manager); and
Alexander Capital Management, Inc., (Portfolio
Manager).
819102.8
3
<PAGE>
Number of Shares
Beneficially Owned &
Name (Age) Principal Occupation And Other Business Percent of Class as of
And Address Experience During The Past Five Years April 1, 1999
- ----------- ------------------------------------- -------------
Ian Martin Dalziel Precision Systems Inc., Telco services company, 0 and 0%
(51) (Director), (1996-Present);
45 route des Eaux-Belles Continental Assets Trust PLC, Investment Trust,
1243 - Presinge (Chairman), (1989-Present);
Geneva (Switzerland) C.S.I. Inc., Digital imaging company, (Chairman),
(1992-Present);
Lepercq-Amcur Fund NV, Investment Fund,
(Director), (1989-Present);
Adam & Company Group PLC, (Banker), (1983-92);
Member of the European Parliament, (1979-84);
London Borough Councillor, (1976-79);
Manufacturers Hanover Limited, (Banker), (1972-83);
and
Mullens & Co., (Stockbrokers), (1970-72).
Dr. Marvin Schiller Salant Corporation, (Director); 0 and 0%
(64) Tutor time Learning Systems, Inc., (Director);
17319 St. James Court Reprise Capital Corp., (Director);
Boca Raton, Florida 33496 A.T. Kearney, Inc., (Managing Director).
Dennis Tarzian New Century Education Corp., (President and Chief 0 and 0%
(47) Executive Officer);
575 Highland Avenue National Registered Agents, Inc., (Director); and
Ridgewood, NJ 07450 Paramount Communications Business, Technical and
Professional Group, (Vice President and Chief
Operating Officer).
</TABLE>
All current Directors and officers of the Fund as a group owned
800 shares of the Fund, which constituted less than 1% of its outstanding
shares as of April 1, 1999.
Notes:
* An asterisk denotes "interested persons" of the Fund as defined in the 1940
Act (the "Interested Directors"). The present officers of the Fund are
Margaret B. Doyle, President and Treasurer and Francis J. Alexander, Vice
President and Secretary.
(1)Serves on current Board and is nominee.
819102.8
4
<PAGE>
Director Compensation
The members of the Board of Directors who are not "interested
persons" (as defined in the 1940 Act) of the Fund (the "Independent Directors")
are paid $________ annually and a fee of $___ for each Board meeting attended
and are reimbursed for any travel or other expenses of 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 meetings in the Fund's fiscal year ended
December 31, 1998 (the "1998 fiscal year") and all Directors except _________
were present at each meeting. Currently, the Board has no committees. Upon
election of the new Board, the Fund intends to form both an audit and nominating
committee upon which all directors who are not "interested persons" (as such
term is defined in the 1940 Act) 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 are not "interested persons" of the Fund (as such term is defined in
the 1940 Act). The current Board of the Fund intends to resign their seats on
the Board upon the election of the new Board members by the Fund's shareholders.
For the fiscal year ended December 31, 1998 the Directors listed
below received the following compensation:
Name, Position with Aggregate Compensation Total Compensation Paid From
Fund From Fund Fund Complex*
- ------------------- ---------------------- --------------------------------
Murray Stahl, $297 $297
Director
Kathleen Campbell, $297 $297
Director
Douglas Cohen, $297 $297
Director
- --------------
* The Fund is the only fund in the fund complex.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR ELECTION
OF THE NOMINEES FOR DIRECTORS.
PROPOSAL 2 - TO APPROVE A NEW INVESTMENT ADVISORY AGREEMENT
FOR THE FUND
Proposal Overview
Shareholders of the Fund are being asked to approve a new investment
advisory agreement (the "Proposed Agreement") between the Fund and Lepercq. The
Proposed Agreement does not provide for any change in the amount of the
investment advisory fees to be paid to Lepercq from the amount now being paid to
Kinetics Asset Management, Inc. ("Kinetics"), the current investment adviser to
the Fund. The Proposed Agreement is being submitted for shareholder approval due
to the fact that Lepercq has entered into an asset purchase agreement with
Kinetics which provides that Lepercq will purchase substantially all the assets
of Kinetics (the "Purchase"). If the Purchase is consummated, the
819102.8
5
<PAGE>
investment advisory agreement between Kinetics and the Fund will terminate by
operation of law. The Proposed Agreement will then simultaneously be entered
into between Lepercq and the Fund. The Proposed Agreement will be substantially
similar in all material terms to the current investment advisory agreement with
the Fund except for: (i) the identity of the adviser, (ii) the dates of
execution and termination, and (iii) pursuant to the provisions of the proposed
Rule 12b-1 Distribution and Service Plan, a modification to allow Lepercq to use
a portion of the investment advisory fees it receives for shareholder servicing
and distribution assistance with respect to the Fund's shares. The provision
which allows Lepercq to use a portion of investment advisory fees for
shareholder servicing and distribution assistance with respect to the Fund's
shares will not increase the amount of fees or expenses payable by the Fund
pursuant to the Proposed Agreement.
The Purchase
On March 12, 1999, Kinetics and Lepercq entered into an asset
purchase agreement whereby Lepercq will purchase substantially all of the assets
of Kinetics for cash. Ryan Jacob and Francis J. Alexander, who have served as
portfolio managers of the Fund since its inception, will continue in such
capacity after the Purchase as officers of Lepercq.
In addition, consummation of the Purchase is subject to satisfaction
of a number of other conditions, although the parties may waive some or all of
these conditions. There is no assurance that the Purchase will in fact be
consummated. In addition, because it is impossible to predict with certainty
when other conditions to the Acquisition will be fulfilled, it is not known, as
of the date of this Proxy Statement, when the Acquisition will occur.
Under the purchase agreement, Kinetics and Lepercq agree that they
will use their best efforts to satisfy the conditions of Section 15(f) of the
1940 Act. Section 15(f) provides that an investment adviser to a registered
investment company (such as Kinetics and Lepercq), and affiliated persons of
such investment advisers, may only receive any amount or benefit in connection
with the sale of securities of, or a sale of any other interest in, an
investment adviser which results in an assignment of an investment advisory
contract with an investment company, if
(1) for a period of 3 years after the time of such action,
at least 75% of the board of such investment company are not
interested persons of such company's investment adviser or
predecessor investment adviser, and
(2) there is not imposed an unfair burden on such
investment company as a result of such transaction or any express or
implied terms, conditions, or understandings applicable thereto. The
term "unfair burden" is defined by the 1940 Act to include any
arrangement, during the two-year period after the sale, whereby the
investment adviser (or predecessor or successor adviser), or any
interested person of such adviser, receives or is entitled to receive
any compensation, directly or indirectly, (i) from any person in
connection with the purchase or sale of securities or other property
to, from, or on behalf of the investment company, other than bona
fide ordinary compensation as principal underwriter for such company;
or (ii) from the investment company or its security holders for other
than bona fide investment advisory or other services.
Satisfaction of condition (1) will be met with the election of the
nominees for directors herein; of the four nominees, only one is an "interested"
person as defined in the 1940 Act. As to the satisfaction of condition (2)
above, neither Kinetics nor Lepercq are aware of any express or implied
819102.8
6
<PAGE>
term, condition, arrangement or understanding which would impose an "unfair
burden" on the Fund as a result of the Purchase.
Information about the Adviser
Kinetics currently serves as the investment adviser to the Fund.
Kinetics is a New York corporation and its offices are located at 344 Van Buren
Street, North Babylon, New York 11704. The officers of Kinetics are Margaret B.
Doyle, who is the president and treasurer, and Francis J.
Alexander, who is vice president and secretary.
Names and addresses of Directors who own 10% or more of Kinetics
<TABLE>
<CAPTION>
Principal Occupation and Other
Business Experience During Percentage Ownership of
Name and Address the Past 5 Years Kinetics
- ---------------- ------------------------------ --------
<S> <C>
Karen Doyle 25%
54 1/2Fremont Road
Sleepy Hollow, NY 10951
Leonid Polyakov 25%
5 Club Court
Pleasantville, NY 10570
Margaret Doyle 15%
48 Gamecock Lane
Bablyon, NY 11702
Frank Costa 15%
344 Van Buren Street
North Babylon, NY 11704
</TABLE>
Kinetics serves as investment adviser to the Fund pursuant to an
investment advisory contract dated April 5, 1996 (the "Agreement"). Under the
terms of the investment advisory contract, Kinetics 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 Kinetics provides under the
Agreement, the Fund is obligated to pay Kinetics monthly compensation at the
annual rate of 1.25% of the average daily net assets of the Fund. For the Fund's
fiscal year ended December 31, 1998, Kinetics received advisory fees from the
Fund totaling $26,884. The Agreement was last submitted for shareholder approval
at the Annual Meeting of Shareholders held on April 5, 1996. At that time, the
Agreement was approved. The Fund does not place any of its portfolio
transactions through brokers affiliated with Kinetics or the Fund.
Board Consideration and Approval of Proposed Agreement
The Board, including the Independent Directors, unanimously approved
the Proposed Agreement at a meeting held on March 31, 1999. The Directors
unanimously recommend that shareholders approve the Proposed Agreement between
Lepercq and the Fund, to be effective upon the
819102.8
7
<PAGE>
consummation of the Purchase. The Proposed Agreement will be substantially
identical in all material respects to the investment advisory agreement in
effect immediately before the Purchase, except that (i) the Proposed Agreement
will be dated the date of the Purchase and will be in effect initially for a
period of two years and thereafter from year to year provided that its
continuance is approved in accordance with the terms of the contract and the
applicable provisions of the 1940 Act; (ii) the investment advisor to the Fund
will be changed from Kinetics to Lepercq; and (iii) pursuant to the provisions
of the proposed Rule 12b-1 Distribution and Service Plan, a modification has
been made to allow Lepercq to use a portion of the investment advisory fees it
receives for shareholder servicing and distribution assistance with respect to
the Fund's shares.
In approving the Proposed Agreement and recommending that
Shareholders approve the Proposed Agreement, the Directors considered the
business background of Lepercq. The Directors noted that Lepercq has extensive
experience in the management of investment companies and would be able to assure
that the Fund remain compliant with various laws and afford its shareholders a
high quality of service. The Directors also noted that the current portfolio
managers of the Fund would not change, thereby offering Fund shareholders
continuity of management.
If the shareholders of the Fund do not approve this Proposal, the
Purchase will not be consummated, or if the Purchase is not consummated for any
other reason, then the existing investment advisory agreement relating to the
Fund will continue in effect and Kinetics will continue to manage the Fund.
A copy of the Proposed Agreement is attached as Exhibit A.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED
AGREEMENT AND RECOMMENDS THAT YOU VOTE FOR APPROVAL
OF THE PROPOSED AGREEMENT.
PROPOSAL 3 - TO APPROVE THE RULE 12B-1 DISTRIBUTION AND SERVICE PLAN;
SHAREHOLDER SERVICING AGREEMENT BETWEEN THE FUND AND LEPERCQ,
DE NEUFLIZE & CO. INCORPORATED; AND DISTRIBUTION AGREEMENT
BETWEEN THE FUND AND LEPERCQ, DE NEUFLIZE SECURITIES INC. AS
DISTRIBUTOR OF THE FUND'S SHARES.
Pursuant to this proposal, shareholders of the Fund are being asked
to approve a Rule 12b-1 Distribution and Service Plan (the "Rule 12b-1 Plan"); a
Shareholder Servicing Agreement between Lepercq and the Fund; and a Distribution
Agreement between the Fund and Lepercq, de Neuflize Securities Inc. (the
"Distributor") as the distributor of the Fund's shares. If approved, pursuant to
the proposed Rule 12b-1 Plan (see Exhibit B), the Fund and Lepercq will enter
into a Shareholder Servicing Agreement (see Exhibit C) in a form satisfactory to
the Fund's Board of Directors. The proposed Shareholder Servicing Agreement
provides that Lepercq will receive from the Fund a service fee (the "Service
Fee") to compensate Lepercq for providing shareholder services and to permit
Lepercq to compensate others for providing such shareholder services with
respect to the Fund's shares. The Service Fee will be paid at the annual rate of
one quarter of one percent (0.25%) of the Fund's average daily net assets. The
Service Fee will be accrued by the Fund daily and will be payable on the last
day of each calendar month for services performed during that month or on such
other schedule as Lepercq may request of the Fund in writing. Lepercq may waive
its right to any fee to which it is entitled, provided such waiver is delivered
to the Fund in writing.
819102.8
8
<PAGE>
Also pursuant to the proposed Rule 12b-1 Plan, the Fund and
Distributor will enter into a Distribution Agreement (see Exhibit D), in a form
satisfactory to the Fund's Board of Directors, under which the Distributor will
act as distributor of the Fund's shares. Pursuant to the Distribution Agreement,
the Distributor, as agent of the Fund, will solicit orders for the purchase of
the Fund's shares, provided that any subscriptions and orders for the purchase
of the shares will not be binding on the Fund until accepted by the Fund as
principal.
The proposed Distribution Agreement provides that the Distributor
will receive from the Fund an asset based sales charge (the "Asset Based Sales
Charge") to compensate the Distributor for providing distribution assistance or
for arranging for others to provide distribution assistance with respect to
sales of the Fund's shares. The Asset Based Sales Charge will be equal to .10%
per annum of the Fund's average daily net assets and will be accrued by the Fund
daily, and will be payable on the last day of each calendar month for services
performed during that month or on any such other schedule as the Distributor may
request of the Fund in writing. The Distributor may waive its right to any fee
to which it is entitled, provided such waiver is delivered to the Fund in
writing.
The Fund will pay for (i) telecommunications expenses, including the
cost of dedicated lines and CRT terminals, incurred by the Distributor in
carrying out its obligations under the Distribution Agreement and (ii) the cost
of preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts. Payments made by the Distributor to shareholder
servicing agents for performing shareholder servicing and related administrative
functions or for the purpose of distributing the shares are subject to
compliance by them with the terms of written agreements in a form satisfactory
to the Fund's Board of Directors to be entered into between the Distributor and
the shareholder servicing agent. Pursuant to the Rule 12b-1 Plan, the Fund and
the Distributor will prepare and furnish to the Fund's Board of Directors, at
least quarterly, written reports setting forth all amounts expended for
distribution purposes by the Fund and the Distributor, identifying the
distribution activities for which such expenditures were made.
The Rule 12b-1 Plan may be terminated without penalty at any time
by: (i) a vote of the majority of the entire Board of Directors of the Fund,
(ii) by a vote of a majority of the Directors of the Fund who are not interested
persons (as defined in the 1940 Act) of the Fund and who have no direct or
indirect financial interest in the operation of the Rule 12b-1 Plan or in any
agreement related to the Rule 12b-1 Plan, or (iii) by a vote of a majority of
the outstanding voting securities of the Fund (as defined in the 1940 Act).
The proposed Rule 12b-1 Plan will support the Distributor's effort to
increase the Fund's net assets. Adoption of a Shareholder Servicing Agreement
will allow Lepercq to be compensated for shareholder servicing. In addition, the
servicing fee will permit Lepercq to compensate other financial institutions
whose clients invest in the Fund for providing such services for their clients.
With respect to the adoption of the Distribution Agreement and an asset based
sales charge, the charge will permit the Distributor to further market and
advertise investment in the Fund's shares. The Fund's investment advisor and
distributor believe that such fees, pursuant to the adoption of the Rule 12b-1
Plan, will foster the Fund's growth. Further, they believe that an increase in
the size of the Fund will be beneficial to current shareholders by decreasing
the impact on the Fund's overall expense ratio of its other fixed expenses. For
these reasons the Fund's Board of Directors has determined that the adoption of
the Rule 12b-1 plan is in the best interest of the Fund and its shareholders.
819102.8
9
<PAGE>
Fees and Expenses Associated with the Approval of the Rule 12b-1 Plan,
Distribution Agreement, and Shareholder Servicing Agreement
The following tables are designed to facilitate an investor's
understanding of the impact on the total operating expenses of the Fund by the
approval and subsequent adoption by the Board of the proposed Rule 12b-1 Plan,
Distribution Agreement, and Shareholder Servicing Agreement.
FEE TABLE
This table describes the fees and expenses that you may pay if you
currently buy and hold shares in the Fund.
Management Fees 1.25%
Distribution and Service (12b-1) Fees 0.00%
Other Expenses .50%
-----
Total Fund Operating Expenses 1.75%
Example
This Example 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 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. The Example also assumes that your investment has a 5% return each year
and that 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:
1 year 3 years 5 years 10 years
$____ $____ $____ $____
FEE TABLE
This table describes the fees and expenses that you may pay if you
buy and hold shares in the Fund after approval and subsequent adoption by the
Board of the proposed Rule 12b-1 Plan; Distribution Agreement and Shareholder
Servicing Agreement.
Management Fees 1.25%
Distribution and Service (12b-1) Fees .35%
Other Expenses ____%
Total Fund Operating Expenses ____%
Example
This Example 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 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. The Example also assumes that your
819102.8
10
<PAGE>
investment has a 5% return each year and that 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:
1 year 3 years 5 years 10 years
$____ $____ $____ $____
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE APPROVAL OF THE RULE 12B-1 DISTRIBUTION AND SERVICE PLAN;
SHAREHOLDER SERVICING AGREEMENT BETWEEN THE FUND AND LEPERCQ,
DE NEUFLIZE & CO. INCORPORATED; AND THE DISTRIBUTION AGREEMENT
BETWEEN THE FUND AND LEPERCQ, DE NEUFLIZE SECURITIES INC. AS
DISTRIBUTOR OF THE FUND'S SHARES.
PROPOSAL 4 - APPROVAL OF THE REORGANIZATION OF THE FUND FROM A
NEW YORK CORPORATION INTO 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 E.
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 into 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 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 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 shareholders 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 shareholder's investment in
the Current Fund will not change for all practical purposes.
Background and Reasons for the Reorganizations
The Current Board unanimously recommends conversion of the Current
Fund into 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 account their unique structure and
operations, and allows funds to simplify their operations by reducing
administrative burdens to generally operate more efficiently. For example,
unlike a New York corporation, funds organized as Maryland corporations are not
required to hold annual shareholders' 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 shareholders at a meeting.
819102.8
11
<PAGE>
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
shareholders of the Current Fund to reorganize the Current Fund into 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 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 shareholders 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 shareholder and will
credit to that account the exact number of full and fractional shares of the New
Shares that such shareholder previously held of the Current Shares on the
effective date of the Reorganization. Each shareholder 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.
On the effective date of the Reorganization, each certificate
representing Current Shares will represent an identical number of New Shares.
Shareholders will have the right to exchange their certificates of the Current
Fund for certificates of the New Fund. A shareholder, however, is not required
to make this exchange of certificates.
The Plan provides that the effective date of the Reorganization will
be (i) 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 meeting of shareholders of the Current Fund at which
the Plan will be considered or (ii) such later date as the Current Fund and
Lepercq may mutually agree. 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.
819102.8
12
<PAGE>
Capitalization and Structure
The Current Fund was organized as a New York corporation pursuant to a
certificate of incorporation dated 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. The New Fund was incorporated under the Maryland General Corporation Law
(the "Maryland Code") on ____________, 1999. It has authorized capitalization of
2,000,000,000 shares of common stock, par value $0.01 per share. The Board of
Directors of the New Fund has the power to designate one 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.
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 transferable and have no preemptive or subscription
rights.
Prior to the Reorganization, the New Fund will have nominal assets
and no liabilities. The sole shareholder of the New Fund will be the Current
Fund. The New Fund will have the same investment objective and policies as the
Current Fund. If Proposal Two herein is approved, Lepercq will provide
investment management services to the New Fund. The New Fund 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.
Effects of Shareholder Approval of the Reorganization
An investment company registered under the 1940 Act is required to:
(1) submit the selection of the company's independent auditors to all
shareholders for their ratification; (2) call a special meeting to elect
directors within 60 days if, at any time, less than one half of the directors
holding office have been elected by all shareholders; (3) submit any proposed
investment management agreement relating to the investment company to the
shareholders of that investment company for approval; and (4) submit any
proposed Rule 12b-1 Distribution and Service Plan to the shareholders of that
investment company for approval.
The Current Board believes that it is in the best interest of the
shareholders of the Current Fund (who will become the shareholders of the New
Fund if the Reorganization is approved) to avoid the considerable expense of
another shareholders' meeting to obtain the shareholder approvals described
above shortly after the closing of the Reorganization. The Current Board also
believes that it is not in the best interest of the shareholders to carry out
the Reorganization if the surviving New Fund would not have a Board of
Directors, independent auditors, and an investment management agreement
complying with the 1940 Act.
The Current Board will, therefore, consider approval of the
Reorganization by the requisite vote of the shareholders of the Current Fund to
constitute the approval of the Plan contained in Exhibit E, and will also
constitute, for the purposes of the 1940 Act: (1) ratification of the
independent auditors for the Current Fund at the time of the Reorganization as
the New Fund's independent auditors; (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
819102.8
13
<PAGE>
Proposal 1); and (3) approval by the shareholders of the Current Fund of the
investment management agreement between the Current Fund and Lepercq and the
proposed Rule 12b-1 Plan, as approval by the shareholders of the New Fund of the
management agreement between the New Fund and Lepercq and Rule 12b-1 Plan, which
will be substantially identical to the agreement and plan that are in place
between the Current Fund and Lepercq on the effective date of the Reorganization
(please see Proposal 2).
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 shareholders
of the Current Fund, the officers of the Current Fund, prior to the
Reorganization, will cause the Current Fund, as the sole shareholder 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
office of the New Fund are 1675 Broadway, New York, New York 10019, and
1-888-FUND-WWW.
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 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 shareholders of the Current Fund or the New Fund.
A shareholder'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 shareholder 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.
Distribution Plans and Shareholder Servicing Arrangements
The New Fund will enter into shareholder servicing and distribution
agreements which are substantially identical to the agreements which were herein
submitted to be approved for the Current Fund for such services (please see
Proposal Three). If Proposal Three herein is approved, the New Fund will also
adopt a distribution plan under Rule 12b-1 of the 1940 Act, distribution
agreement and shareholder servicing agreement relating to New Shares that is
substantially identical to the same in place for the shares of the Current Fund.
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.
819102.8
14
<PAGE>
Expenses of the Reorganization
Because the Reorganization will benefit solely the Current Fund and
its shareholders, 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
shareholders.
Comparison of Legal Structures
A comparison of the New York statutory provisions governing New York
corporations with the Maryland Code, as well as a comparison of relevant
provisions of the governing documents of the Current Fund and the New Fund, is
included in Exhibit F, which is entitled "Differences in Legal Structures."
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE PROPOSED REORGANIZATION.
Shareholder Proposals
Shareholders wishing to submit proposals for inclusion in a proxy
statement for a subsequent shareholders' 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 submission of a proposal does not,
however, necessarily mean that such proposal will be included.
The financial statements included in the Annual Report to
Shareholders of the Fund for the fiscal year ended December 31, 1998 are
incorporated by reference in this proxy statement.
By Order of the Board of Directors
/s/ Francis J. Alexander
----------------------------------
Francis J. Alexander, Secretary
_________ ____, 1999
819102.8
15
<PAGE>
Exhibit A
FORM OF INVESTMENT ADVISORY AGREEMENT
THE INTERNET FUND, INC.
1675 Broadway
New York, New York 10019
_______, 1999
Lepercq, de Neuflize & Co. Incorporated
1675 Broadway
New York, New York 10019
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We propose to engage in the business of investing and reinvesting
the assets of The Internet Fund, Inc. (the "Fund"), in securities of the type,
and in accordance with the limitations, specified in our Articles of
Incorporation, By-Laws and Registration Statement filed with the Securities and
Exchange Commission under the Investment Company Act of 1940 (the "1940 Act")
and the Securities Act of 1933, including the Prospectus forming a part thereof
(the "Registration Statement"), all as from time to time in effect, and in such
manner and to such extent as may from time to time be authorized by the Fund's
Board of Directors. We enclose copies of the documents listed above and will
furnish you such amendments thereto as may be made from time to time.
2. (a) We hereby employ you to manage the investment and reinvestment
of our assets as above specified, and, without limiting the generality of
the foregoing, to provide the management and other services specified below.
(b) Subject to the general control of the Fund's Board of Directors,
you will make decisions with respect to all purchases and sales of our portfolio
securities. To carry out such decisions, you are hereby authorized, as our agent
and attorney-in-fact, for our account and at our risk and in our name, to place
orders for the investment and reinvestment of our assets. In all purchases,
sales and other transactions in our portfolio securities you are authorized to
exercise full discretion and act for us in the same manner and with the same
force and effect as our corporation itself might or could do with respect to
such purchases, sales or other transactions, as well as with respect to all
other things necessary or incidental to the furtherance or conduct of such
purchases, sales or other transactions. In furtherance of such and subject to
applicable law and procedures adopted by the Fund's Board of Directors, you may
(i) pay commissions to brokers other than yourself which are higher than such
that might be charged by another qualified broker to obtain brokerage and/or
research services considered by you to be useful or desirable for your
investment management of the Fund and/or other
817575.1
<PAGE>
advisory accounts of yours and any investment advisor affiliated with you; and
(ii) consider the sales of shares of the Fund by brokers including your
affiliates as a factor in your selection of brokers for portfolio transactions.
(c) You will report to the Fund's Board of Directors at each meeting
thereof all changes in the Fund since your prior report, and will also keep us
in touch with important developments affecting the Fund and, on your own
initiative, will furnish us from time to time with such information as you may
believe appropriate for this purpose, whether concerning the individual entities
whose securities are included in the Fund the activities in which such entities
engage, Federal income tax policies applicable to our investments, or the
conditions prevailing in the economy generally. You will also furnish us with
such statistical and analytical information with respect to our portfolio
securities as you may believe appropriate or as we may reasonably request. In
making such purchases and sales of our portfolio securities, you will comply
with the policies set from time to time by the Fund's Board of Directors as well
as the limitations imposed by our Articles of Incorporation, the provisions of
the Internal Revenue Code relating to regulated investment companies and the
1940 Act, and the limitations contained in our Registration Statement.
(d) It is understood that you may from time to time employ,
subcontract with or otherwise associate yourself with, entirely at your expense,
such persons as you believe to be particularly fitted to assist you in the
execution of your duties hereunder.
(e) You or your affiliates will also provide supervisory personnel who
will be responsible for supervising and monitoring the performance of our
Administrator in connection with its duties under our Administrative Services
Agreement. Such personnel may be your employees or employees of your affiliates
or of other organizations. It is understood that we have retained, at our
expense, the Administrator to perform the operational components of the
functions and services listed herein.
(f) You or your affiliates will also furnish us such additional
administrative supervision and such office facilities as you may believe
appropriate subject to the requirements of any regulatory authority to which you
may be subject. We will reimburse you for all of our operating costs incurred by
you, including rent, depreciation of equipment and facilities, interest and
amortization of loans financing equipment used by us and all the expenses
incurred to conduct our affairs. The amounts of such reimbursements shall from
time-to-time be agreed upon between us.
3. We agree, subject to the limitations described below, to be
responsible for, and hereby assume the obligation for payment of, all our
expenses including: (a) brokerage and commission expenses; (b) foreign, federal,
state or local taxes, including issuance and transfer taxes incurred by or
levied on us; (c) commitment fees, certain insurance premiums and membership
fees and dues in investment company organizations; (d) interest charges on
borrowings; (e) charges and expenses of our custodian; (f) charges and expenses
relating to the issuance, redemption, transfer and dividend disbursing functions
for us; (g) telecommunications expenses; (h) recurring and non-recurring legal,
accounting and recordkeeping expenses; (i) costs of organizing and maintaining
the Fund's existence as a corporation; (j) compensation, including directors'
fees, of any of our directors, officers or
-2-
817575.1
<PAGE>
employees who are not your officers or employees or those of the Administrator
or their affiliates, and costs of other personnel providing administrative and
clerical services to us; (k) costs of providing shareholders' services,
including charges and expenses of persons providing confirmations of
transactions in the Fund's shares, periodic statements to shareholders and
recordkeeping services, and costs of shareholders' reports, proxy solicitations,
and corporate meetings; (l) fees and expenses of registering our shares under
the appropriate federal securities laws and of qualifying our shares under
applicable state securities laws, including expenses attendant upon the initial
registration and qualification of these shares and attendant upon renewals of,
or amendment to, those registrations and qualifications; (m) expenses of
preparing, printing and delivering the initial registration statement and of
preparing, printing and delivering the Prospectus to existing shareholders and
of printing shareholder application forms for shareholder accounts; (n) fees and
expenses payable to the Adviser, Distributor, Administrator, custodian, transfer
agent and dividend agent; and (o) any other distribution or promotional expenses
contemplated by an effective plan adopted by us pursuant to Rule 12b-1 under the
1940 Act. Our obligation for the foregoing expenses is limited by your agreement
to be responsible, while this Agreement is in effect, for any amount by which
our annual operating expenses, including distribution expenses (excluding taxes,
brokerage, interest and extraordinary expenses) exceed the limits on investment
company expenses prescribed by any state in which the Fund's shares are
qualified for sale.
4. We will expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our security
holders by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties hereunder, or by reason of your reckless disregard of
your obligations and duties hereunder.
5. (a) In consideration of the foregoing we will pay you an annual fee
equal to 1.25% of the Fund's annual average daily net assets. Your fee will be
accrued by us daily, and will be payable on the last day of each calendar month
for services performed hereunder during that month or on such other schedules as
you shall request of us in writing. You may waive your right to any fee to which
you are entitled hereunder, provided such waiver is delivered to us in writing.
Any reimbursement of our expenses, to which we may become entitled pursuant to
the last sentence of paragraph 3 hereof, will be paid to us at the end of the
month for which those expenses are accrued, at the same time as we pay you your
fee.
(b) Pursuant to the Fund's Distribution and Service Plan and the
Shareholder Servicing Agreement, you will also act as a shareholder servicing
agent for the Fund pursuant to which the Fund is permitted to pay you a maximum
of 0.25% per annum of the Fund's average daily net assets to compensate you for
providing shareholder services and to permit you to compensate banks,
broker-dealers, savings and loans and other financial institutions (the Adviser,
with such other institutions, each a "Shareholder Servicing Agent") whose
clients are Fund shareholders for providing shareholder services. Further,
pursuant to the Fund's Distribution and Service Plan and the Distribution
Agreement, the Distributor will receive a distribution fee to compensate the
Distributor for providing distribution assistance or for arranging for others to
provide distribution assistance with respect to sales of our shares. In
-3-
817575.1
<PAGE>
addition, you may use the advisory fee for distribution of our shares and for
servicing purposes including defraying the costs of performing shareholder
servicing functions on behalf of the Fund and to compensate others with whom you
may have entered into a written agreement for performing shareholder servicing
functions on behalf of the Fund. To the extent that you or your affiliates
directly may make payments to other third parties who render shareholder support
services or distribution assistance and that such payments may be deemed
indirect financing of an activity primarily intended to result in the sale of
shares of the Fund within the context of Rule 12b-1 under the 1940 Act (the
"Rule"), then such payments by you shall be deemed to be authorized under the
Fund's Distribution and Service Plan adopted pursuant to the Rule. You will, in
your sole discretion, determine the amount of such payments and may from time to
time in your sole discretion increase or decrease the amount of such payments;
provided, however, that no such payment will increase the amount the Fund is
required to pay you or any person under this Agreement or any agreement. Any
payments made by you for such purposes are subject to compliance with the terms
of written agreements in a form satisfactory to the Fund's Board of Directors to
be entered into by you and the participating organization.
6. This Agreement will become effective on _______, 1999 and shall
continue in effect until _______, 2001 and thereafter for successive
twelve-month periods (computed from each ______), provided that such
continuation is specifically approved at least annually by the Fund's Board of
Directors or by a majority vote of the holders of the Fund's outstanding voting
securities, as defined in the 1940 Act, and, in either case, by a majority of
those of the Fund's Directors who are neither party to this Agreement nor, other
than by their service as Directors of the Fund, interested persons, as defined
in the 1940 Act, of any such person who is party to this Agreement. Upon the
effectiveness of this Agreement, it shall supersede all previous Agreements
between us covering the subject matter hereof. This Agreement may be terminated
at any time, without the payment of any penalty, by vote of a majority of the
Fund's outstanding voting securities, as defined in the 1940 Act, or by a vote
of a majority of the entire Board of Directors, on sixty days' written notice to
you, or by you on sixty days' written notice to us.
7. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by you and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the Securities and Exchange Commission.
8. (a) Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to any other
corporation, firm, individual or association.
-4-
817575.1
<PAGE>
(b) The Fund understands that you and your affiliates and employees,
as well as their agents privy to the transactions made in the Fund's account,
may, subject to the Fund's and to your Code of Ethics, purchase and sell
investments for either your or their own account, which investments may include
the same investments that the Fund's account is purchasing or selling; provided,
however, that no purchase or sale by you, or any of your affiliates, agents or
employees, or any of their agents privy to the transactions made in the Fund's
account, will be made in a manner which would result in any detriment to the
Fund, and such persons shall always keep the interests of the Fund first in
effecting any such transaction.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE INTERNET FUND, INC.
By:
---------------------------------
Name:
Title:
ACCEPTED:
LEPERCQ, DE NEUFLIZE & CO. INCORPORATED
By:
----------------------------------
Name:
Title:
-5-
817575.1
<PAGE>
Exhibit B
THE INTERNET FUND, INC.
FORM OF DISTRIBUTION AND SERVICE PLAN PURSUANT TO RULE 12B-1
UNDER THE INVESTMENT COMPANY ACT OF 1940
This Distribution and Service Plan (the "Plan") is adopted by The
Internet Funds Inc. (the "Fund") in accordance with the provisions of Rule 12b-1
under the Investment Company Act of 1940 (the "Act").
The Plan
1. The Fund and Lepercq, de Neuflize Securities Inc. (the
"Distributor") will enter into a Distribution Agreement, in a form satisfactory
to the Fund's Board of Directors, under which the Distributor acts as
distributor of the Fund's shares. Pursuant to the Distribution Agreement, the
Distributor, as agent of the Fund, will solicit orders for the purchase of the
Fund's shares, provided that any subscriptions and orders for the purchase of
the shares will not be binding on the Fund until accepted by the Fund as
principal. The Fund and Lepercq, de Neuflize & Co. Incorporated (the "Advisor")
will enter into a Shareholder Servicing Agreement, in a form satisfactory to the
Fund's Board of Directors under which the Advisor will provide shareholder
services and arrange for others to provide shareholder services with respect to
the Fund's shares.
2. (a) The Distribution Agreement provides that the Distributor will
receive from the Fund an asset based sales charge ("Asset Based Sales Charge")
to compensate the
820118.1
<PAGE>
Distributor for providing distribution assistance or for arranging for others to
provide distribution assistance with respect to sales of the Fund's shares.
(b) The Shareholder Servicing Agreement provides that the Advisor will
receive from the Fund a service fee ("Service Fee") to compensate the Advisor
for providing shareholder services and to permit the Advisor to compensate
others for providing such shareholder services with respect to the Fund's
shares.
(c) In addition, the Investment Advisory Agreement for the Fund
provides that the Advisor may make payments from time to time from its own
resources, which may include the management fee received from the Fund,
management or advisory fees received from other investment companies and past
profits, for the following purposes:
(i) to defray the costs of, and to compensate others, including
organizations whose customers or clients are Fund shareholders
("Shareholder Servicing Agents"), for performing shareholder servicing and
related administrative functions on behalf of the Fund;
(ii) to compensate certain Shareholder Servicing Agents for providing
assistance in distributing the Fund's shares;
(iii) to pay the cost of printing and distributing the Fund's
prospectus to prospective investors; and
(iv) to defray the cost of the preparation and printing of brochures
and other promotional materials, mailings to prospective shareholders,
advertising, and other promotional activities, including the salaries
and/or commissions of sales personnel in connection with the distribution
of the shares.
-2-
820118.1
<PAGE>
In addition, under the Distribution Agreement, the Distributor may make payments
from time to time from its Asset Based Sales Charge for the purposes enumerated
in paragraphs (ii), (iii) and (iv) above. Under the Shareholder Servicing
Agreement, the Advisor may make payments from time to time from its Service Fees
for the purpose enumerated in (i) above. The Distribution Agreement will further
provide that the Distributor in its sole discretion, will determine the amount
of such payments made pursuant to the Plan, provided that such payments will not
increase the amount which the Fund is required to pay to the Distributor or the
Advisor for any fiscal year under the Distribution Agreement, the Shareholder
Servicing Agreement or the Investment Advisory Agreement in effect for that
year.
3. The Investment Advisory Agreement will also require the Advisor to
reimburse the fund for its expenses (exclusive of interest, taxes, brokerage,
and extraordinary expenses) which in any year exceed the limits on investment
company expenses prescribed by any state in which the shares are qualified for
sale.
4. The Fund will pay for (i) telecommunications expenses, including
the cost of dedicated lines and CRT terminals, incurred by the Distributor in
carrying out its obligations under the Distribution Agreement and (ii) the cost
of preparing, printing and delivering the Fund's prospectus to existing
shareholders of the Fund and preparing and printing subscription application
forms for shareholder accounts.
5. Payments made by the Distributor to Shareholder Servicing Agents
for performing shareholder servicing and related administrative functions or for
the purpose of distributing the shares are subject to compliance by them with
the terms of written agreements
-3-
820118.1
<PAGE>
in a form satisfactory to the Fund's Board of Directors to be entered into
between the Distributor and the Shareholder Servicing Agent.
6. The Fund and the Distributor will prepare and furnish to the Fund's
Board of Directors, at least quarterly, written reports setting forth all
amounts expended for distribution purposes by the Fund and the Distributor,
pursuant to the Plan, and identifying the distribution activities for which such
expenditures were made.
7. The Plan will become effective immediately upon approval by (i) a
majority of the outstanding voting securities of the Fund (as defined in the
Act), and (ii) a majority of the Board of Directors of the Fund, including a
majority of the Directors who are not interested persons (as defined in the Act)
of the Fund and who have no direct or indirect financial interest in the
operation of the Plan or in any agreement entered into in connection with the
Plan, pursuant to a vote cast in person at a meeting called for the purpose of
voting on the approval of the Plan.
8. The Plan will remain in effect until ________, 2000, unless earlier
terminated in accordance with its terms, and thereafter may continue in effect
for successive annual periods if approved each year in the manner described in
clause (ii) of paragraph 7 hereof.
9. The Plan may be amended at any time with the approval of the Board
of Directors of the Fund, provided that (i) any material amendments of the terms
of the Plan will be effective only upon approval as provided in clause (ii) of
paragraph 7 hereof, and (ii) any amendment which increases materially the amount
which may be spent by the Fund pursuant to
-4-
820118.1
<PAGE>
the Plan will be effective only upon the additional approval as provided in
clause (i) of paragraph 7 hereof.
10. The Plan may be terminated without penalty at any time (i) by a
vote of the majority of the entire Board of Directors of the Fund, (ii) by a
vote of a majority of the Directors of the Fund who are not interested persons
(as defined in the Act) of the Fund and who have no direct or indirect financial
interest in the operation of the Plan or in any agreement related to the Plan,
or (iii) by a vote of a majority of the outstanding voting securities of the
Fund (as defined in the Act).
-5-
820118.1
<PAGE>
Exhibit C
FORM OF SHAREHOLDER SERVICING AGREEMENT
THE INTERNET FUND, INC. (the "Fund")
Lepercq, de Neuflize & Co. Incorporated
1675 Broadway
New York, New York 10019
Gentlemen:
We herewith confirm our agreement with you as follows:
1. We hereby employ you, pursuant to the Distribution and Service Plan
adopted by us in accordance with Rule 12b-1 (the "Plan") under the Investment
Company Act of 1940, as amended (the "Act"), to provide the services listed
below:
(a) You will perform, or arrange for others including organizations
whose customers or clients are shareholders of our corporation (the "Shareholder
Servicing Agents") to perform, all shareholder servicing functions and
maintenance of shareholder accounts not performed by us or by our Transfer Agent
("Shareholder Services"). You may make payments from time to time from any
Shareholder Servicing Fees (as defined below) received under this Agreement, to
defray the costs of, and to compensate others, including Shareholder Servicing
Agents with whom our distributor has entered into written agreements, for
performing Shareholder Services.
(b) In consideration of your performance of the Shareholder Services,
we will pay you a service fee, as defined by Article III, Section 26(b)(9) of
the Rules of Fair Practice, as amended, of the National Association of
Securities Dealers, Inc., at the annual rate of one quarter of one percent
(0.25%) of the Fund's average daily net assets (the "Shareholder Servicing
Fee"). Your fee will be accrued by us daily, and will be payable on the last day
of each calendar month for services performed hereunder during that month or on
such other schedule as you shall request of us in writing. You may waive your
right to any fee to which you are entitled hereunder, provided such waiver is
delivered to us in writing.
(c) You will in your sole discretion determine the amount of any
payments made by you pursuant to this Agreement, and you may from time to time
in your sole discretion increase or decrease the amount of such payments;
provided, however, that no such payment will increase the amount which we are
required to pay to you under either this Agreement or any management agreement
or distribution agreement between you and us, or otherwise.
2. You will be responsible for the payment of all expenses incurred by
you in rendering the foregoing services, except that we will pay (i)
telecommunications expenses, including the cost of dedicated lines and CRT
terminals, incurred by you and the Shareholder
-1-
820169.1
<PAGE>
Servicing Agents in rendering such services, and (ii) the cost of typesetting,
printing and delivering our prospectus to existing shareholders of the Portfolio
and of preparing and printing subscription application forms for shareholder
accounts. Our obligation to be responsible for the expenses enumerated in this
paragraph 2 is limited to an amount equal to .05% per annum of the Portfolio's
average daily net assets.
3. Payments to Shareholder Servicing Agents to compensate them for
distributing our shares and/or providing shareholder servicing and related
administrative functions are subject to compliance by them with the terms of
written agreements satisfactory to our Board of Directors to be entered into
between our distributor and the Shareholder Servicing Agents.
4. We will expect of you, and you will give us the benefit of, your
best judgment and efforts in rendering these services to us, and we agree as an
inducement to your undertaking these services that you will not be liable
hereunder for any mistake of judgment or for any other cause, provided that
nothing herein shall protect you against any liability to us or to our
shareholders by reason of willful misfeasance, bad faith or gross negligence in
the performance of your duties hereunder, or by reason of your reckless
disregard of your obligations and duties hereunder.
5. This Agreement will become effective on the date hereof and will
remain in effect until __________, 2000 and thereafter for successive
twelve-month periods (computed from each _____________), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this Agreement.
This Agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors, and by a vote
of a majority of our Directors who are not interested persons (as defined in the
Act) and who have no direct or indirect financial interest in the operation of
the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities, as defined in the Act, on sixty days' written
notice to you, or by you on sixty days' written notice to us.
6. This Agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by you, and this Agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the Securities and Exchange Commission
thereunder.
7. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your officers, directors or employees who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the Act, to engage in any other business or to devote
-2-
820169.1
<PAGE>
time and attention to the management or other aspects of any other business,
whether of a similar or dissimilar nature, or to render services of any kind to
another corporation, firm, individual or association.
If the foregoing is in accordance with your understanding, will you
kindly so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE INTERNET FUND, INC.
By: _________________________
Name:
Title:
ACCEPTED:
LEPERCQ, DE NEUFLIZE & CO. INCORPORATED
By: _________________________
Name:
Title:
-3-
820169.1
<PAGE>
Exhibit D
FORM OF DISTRIBUTION AGREEMENT
THE INTERNET FUND, INC.
(the "Fund")
New York, New York
_____, 1999
Lepercq, de Neuflize Securities Inc.
1675 Broadway
New York, New York 10019
Ladies and Gentlemen:
1. In consideration of the agreements on your part herein contained and
of the payment by us to you of the fees set forth herein ("Asset Based Sales
Charge"), determined in accordance with paragraph 11 herein and on the terms and
conditions set forth herein, we have agreed that you shall be, for the period of
this agreement, a distributor, as our agent, for the unsold portion of such
number of shares of the Fund, $.001 par value per share, as may be effectively
registered from time to time under the Securities Act of 1933, as amended (the
"1933 Act"). This agreement is being entered into pursuant to the Distribution
and Service Plan (the "Plan") adopted by us in accordance with Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act").
2. We hereby agree that you will act as our agent, and hereby appoint
you our agent, to offer, and to solicit offers to subscribe to, the unsold
balance of shares of the Fund as shall then be effectively registered under the
Act. All subscriptions for the Fund's shares obtained by you shall be directed
to us for acceptance and shall not be binding on us until accepted by us. You
shall have no authority to make binding subscriptions on our behalf. We reserve
the right to sell shares of the Fund through other distributors or directly to
investors through subscriptions received by us at our principal office in New
York, New York. The right given to you under this agreement shall not apply to
shares of our common stock issued in connection with (a) the merger or
consolidation of any other investment company with us, (b) our acquisition by
purchase or otherwise of all or substantially all of the assets or stock of any
other investment company, or (c) the reinvestment in the Fund's shares by our
stockholders of dividends or other distributions or any other offering by us of
securities to our stockholders.
3. You will use your best efforts to obtain subscriptions to shares of
the Fund upon the terms and conditions contained herein and in our Prospectus,
as in effect from time to time. You will send to us promptly all subscriptions
placed with you. We shall furnish you from time to time, for use in connection
with the offering of shares of the Fund,
820187.1
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<PAGE>
such other information with respect to us and such shares as you may reasonably
request. We shall supply you with such copies of our Registration Statement and
Prospectus, as in effect from time to time, as you may request. Except as we may
authorize in writing, you are not authorized to give any information or to make
any representation that is not contained in the Registration Statement or
Prospectus, as then in effect. You may use employees, agents and other persons,
at your cost and expense, to assist you in carrying out your obligations
hereunder, but no such employee, agent or other person shall be deemed to be our
agent or have any rights under this agreement. You may sell the Fund's shares to
or through qualified brokers, dealers and financial institutions under selling
and servicing agreements provided that no dealer, financial institution or other
person shall be appointed or authorized to act as our agent without our written
consent. You will arrange for organizations whose customers or clients are
shareholders of our corporation ("Shareholder Servicing Agents") to enter into
agreements with you for providing assistance in distributing the Fund's shares.
4. You may make payments from time to time from your own resources,
which may include the Asset Based Sales Charge and past profits, for the
following purposes:
(a) to compensate certain Shareholder Servicing Agents for
providing assistance in distributing the Fund's shares;
(b) to pay the cost of printing and distributing the Fund's
prospectus to prospective investors; and
(c) to defray the cost of the preparation and printing of
brochures and other promotional materials, mailings
to prospective shareholders, advertising, and other
promotional activities, including the salaries and/or
commissions of sales personnel in connection with the
distribution of the Fund's shares.
You in your sole discretion, will determine the amount of such payments,
provided that such payments will not increase the amount which we are required
to pay to you for any fiscal year under this agreement. Such payments will be
made only pursuant to written agreements approved in form and substance by our
Board of Directors to be entered into by you and the Shareholder Servicing
Agents. It is recognized that we shall have no obligation or liability to you or
any Shareholder Servicing Agents for any such payments under the agreements with
Shareholder Servicing Agents. Our obligation is solely to make payments to you
under this agreement. All sales of our shares effected through you will be made
in compliance with all applicable federal securities laws and regulations and
the Constitution, rules and regulations of the National Association of
Securities Dealers, Inc. ("NASD").
5. We reserve the right to suspend the offering of shares of the Fund
at any time, in the absolute discretion of our Board of Directors, and upon
notice of such suspension you shall cease to offer such shares hereunder.
820187.1
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<PAGE>
6. Both of us will cooperate with each other in taking such action as
may be necessary to qualify the Fund's shares for sale under the securities laws
of such states as we may designate, provided, that you shall not be required to
register as a broker-dealer or file a consent to service of process in any such
state where you are not now so registered. Pursuant to the Investment Advisory
Agreement in effect between us and our advisor, we will pay all fees and
expenses of registering the Fund's shares under the Act and of qualification of
such shares, and to the extent necessary, our qualification under applicable
state securities laws. You will pay all expenses relating to your broker-dealer
qualification.
7. We represent to you that our Registration Statement and Prospectus
have been carefully prepared to date in conformity with the requirements of the
1933 Act and the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder. We represent and warrant to you, as
of the date hereof, that our Registration Statement and Prospectus contain all
statements required to be stated therein in accordance with the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder; that all statements of
fact contained therein are or will be true and correct at the time indicated or
the effective date as the case may be; and that neither our Registration
Statement nor our Prospectus, when they shall become effective or be authorized
for use, will include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of shares of our common stock. We will
from time to time file such amendment or amendments to our Registration
Statement and Prospectus as, in the light of future development, shall in the
opinion of our counsel, be necessary in order to have our Registration Statement
and Prospectus at all times contain all material facts required to be stated
therein or necessary to make any statements therein not misleading to a
purchaser of shares of our common stock. If we shall not file such amendment or
amendments within fifteen days after our receipt of a written request from you
to do so, you may, at your option, terminate this agreement immediately. We will
not file any amendment to our Registration Statement or Prospectus without
giving you reasonable notice thereof in advance; provided, however, that nothing
in this agreement shall in any way limit our right to file such amendments to
our Registration Statement or Prospectus, of whatever character, as we may deem
advisable, such right being in all respects absolute and unconditional. We
represent and warrant to you that any amendment to our Registration Statement or
Prospectus hereafter filed by us will be carefully prepared in conformity within
the requirements of the 1933 Act and the 1940 Act and the SEC's rules and
regulations thereunder and will, when it becomes effective, contain all
statements required to be stated therein in accordance with the 1933 Act and the
1940 Act and the SEC's rules and regulations thereunder; that all statements of
fact contained therein will, when the same shall become effective, be true and
correct; and that no such amendment, when it becomes effective, will include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading to
a purchaser of our Class B shares.
820187.1
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<PAGE>
8. We agree to indemnify, defend and hold you, and any person who
controls you within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which you or any such controlling
person may incur, under the 1933 Act or the 1940 Act, or under common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in our Registration Statement or Prospectus in effect
from time to time or arising out of or based upon any alleged omission to state
a material fact required to be stated in either of them or necessary to make the
statements in either of them not misleading; provided, however, that in no event
shall anything herein contained be so construed as to protect you against any
liability to us or our security holders to which you would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties under this agreement. Our agreement to indemnify you and
any such controlling person is expressly conditioned upon our being notified of
any action brought against you or any such controlling person, such notification
to be given by letter or by telegram addressed to us at our principal office in
New York, New York, and sent to us by the person against whom such action is
brought within ten days after the summons or other first legal process shall
have been served. The failure so to notify us of any such action shall not
relieve us from any liability which we may have to the person against whom such
action is brought other than on account of our indemnity agreement contained in
this paragraph 8. We will be entitled to assume the defense of any suit brought
to enforce any such claim, and to retain counsel of good standing chosen by us
and approved by you. In the event we do elect to assume the defense of any such
suit and retain counsel of good standing approved by you, the defendant or
defendants in such suit shall bear the fees and expenses of any additional
counsel retained by any of them; but in case we do not elect to assume the
defense of any such suit, or in case you, in good faith, do not approve of
counsel chosen by us, we will reimburse you or the controlling person or persons
named as defendant or defendants in such suit, for the fees and expenses of any
counsel retained by you or them. Our indemnification agreement contained in this
paragraph 8 and our representations and warranties in this agreement shall
remain in full force and affect regardless of any investigation made by or on
behalf of you or any controlling person and shall survive the sale of any Class
B shares of our common stock made pursuant to subscriptions obtained by you.
This agreement of indemnity will inure exclusively to your benefit, to the
benefit of your successors and assigns, and to the benefit of any of your
controlling persons and their successors and assigns. We agree promptly to
notify you of the commencement of any litigation or proceeding against us in
connection with the issue and sale of any Class B shares of our common stock.
9. You agree to indemnify, defend and hold us, our several officers and
directors, and any person who controls us within the meaning of Section 15 of
the 1933 Act, free and harmless from and against any and all claims, demands,
liabilities, and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any reasonable counsel fees incurred in
connection therewith) which we, our officers or directors,
820187.1
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<PAGE>
or any such controlling person may incur under the 1933 Act or under common law
or otherwise, but only to the extent that such liability or expense incurred by
us, our officers or directors or such controlling person shall arise out of or
be based upon any alleged untrue statement of a material fact contained in
information furnished in writing by you to us for use in our Registration
Statement or Prospectus as in effect from time to time, or shall arise out of or
be based upon any alleged omission to state a material fact in connection with
such information required to be stated in the Registration Statement or
Prospectus or necessary to make such information not misleading. Your agreement
to indemnify us, our officers and directors, and any such controlling person is
expressly conditioned upon your being notified of any action brought against us,
our officers or directors or any such controlling person, such notification to
be given by letter or telegram addressed to you at your principal office in New
York, New York, and sent to you by the person against whom such action is
brought, within ten days after the summons or other first legal process shall
have been served. You shall have a right to control the defense of such action,
with counsel of your own choosing, satisfactory to us, if such action is based
solely upon such alleged misstatement or omission on your part, and in any other
event you and we, our officers or directors or such controlling person shall
each have the right to participate in the defense or preparation of the defense
of any such action. The failure to so notify you of any such action shall not
relieve you from any liability which you may have to us, to our officers or
directors, or to such controlling person other than on account of your indemnity
agreement contained in this paragraph 9.
10. We agree to advise you immediately:
(a) of any request by the SEC for amendments to our Registration
Statement or Prospectus or for additional information,
(b) of the issuance by the SEC of any stop order suspending the
effectiveness of our Registration Statement or Prospectus or the initiation of
any proceedings for that purpose,
(c) of the happening of any material event which makes untrue any
statement made in our Registration Statement or Prospectus or which requires the
making of a change in either of them in order to make the statements therein not
misleading, and
(d) of all action of the SEC with respect to any amendments to our
Registration Statement or Prospectus.
11. In addition, we will compensate you for distribution assistance
with respect to sales of the Fund's shares with an Asset Based Sales Charge
equal to .10% per annum of the Fund's average daily net assets. Your fee above
will be accrued by us daily, and will be payable on the last day of each
calendar month for services performed hereunder during
820187.1
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<PAGE>
that month or any such other schedule as you shall request of us in writing.
you may waive your right to any fee to which you are entitled hereunder,
provided such waiver is delivered to us in writing.
12. This agreement will become effective on the date hereof and will
remain in effect until ____________, 2000 and thereafter for successive
twelve-month periods (computed from each _________), provided that such
continuation is specifically approved at least annually by vote of our Board of
Directors and of a majority of those of our directors who are not interested
persons (as defined in the 1940 Act) and have no direct or indirect financial
interest in the operation of the Plan or in any agreements related to the Plan,
cast in person at a meeting called for the purpose of voting on this agreement.
This agreement may be terminated at any time, without the payment of any
penalty, by vote of a majority of our entire Board of Directors, or by a vote of
a majority of our Directors who are not interested persons (as defined in the
1940 Act) and who have no direct or indirect financial interest in the operation
of the Plan or in any agreement related to the Plan, or by vote of a majority of
our outstanding voting securities (with each Class of the Fund voting
separately), as defined in the 1940 Act, on sixty days' written notice to you,
or by you on sixty days' written notice to us.
13. This agreement may not be transferred, assigned, sold or in any
manner hypothecated or pledged by you and this agreement shall terminate
automatically in the event of any such transfer, assignment, sale, hypothecation
or pledge by you. The terms "transfer", "assignment" and "sale" as used in this
paragraph shall have the meanings ascribed thereto by governing law and in
applicable rules or regulations of the SEC thereunder.
14. Except to the extent necessary to perform your obligations
hereunder, nothing herein shall be deemed to limit or restrict your right, or
the right of any of your directors, officers or employees, who may also be a
director, officer or employee of ours, or of a person affiliated with us, as
defined in the 1940 Act, to engage in any other business or to devote time and
attention to the management or other aspects of any other business, whether of a
similar or dissimilar nature, or to render services of any kind to another
corporation, firm, individual or association.
820187.1
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<PAGE>
If the foregoing is in accordance with your understanding, will you kindly
so indicate by signing and returning to us the enclosed copy hereof.
Very truly yours,
THE INTERNET FUND, INC.
By: ________________________
Accepted:
LEPERCQ, DE NEUFLIZE SECURITIES INC.
By: ________________________
820187.1
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<PAGE>
Exhibit E
FORM OF AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization ("Agreement") is made as of
the ___ of __________, 1999 by and between THE INTERNET FUND, INC., a Maryland
corporation ("New Fund") and THE INTERNET FUND, INC., a New York corporation
("Current Fund") (the New Fund and the Current Fund are hereinafter collectively
referred to as the "parties").
In consideration of the mutual promises contained herein, and intending
to be legally bound, the parties hereto agree as follows:
1. PLAN OF REORGANIZATION.
a. Upon satisfaction of the conditions precedent described in Section 3
hereof, the Current Fund will merge (the "Reorganization") with and into the New
Fund, with the New Fund continuing as the surviving corporation in the
Reorganization. In the Reorganization, each share of the Current Fund, $.001 par
value per share (the "Current Shares"), shall cease to be outstanding and shall
be converted into and exchanged for one share of the New Fund, $.01 par value
per share (the "New Shares"), and each share of the New Fund outstanding
immediately prior to the Effective Date (as hereinafter defined) shall remain
issued and outstanding from and after the Effective Date of the Reorganization,
and as of the Effective Date of the Reorganization shall constitute the only
outstanding shares of capital stock of the New Fund. In consideration thereof,
the New Fund agrees at the closing of the transactions contemplated by the
Reorganization (the "Closing") (1) to assume and pay, to the extent that they
exist on or after the Effective Date of the Reorganization (as defined in
Section 2 hereof), all of the Current Fund's obligations and liabilities,
whether absolute, accrued, contingent or otherwise, including all fees and
expenses in connection with the Agreement, which fees and expenses shall in turn
include, without limitation, costs of legal advice, accounting, printing,
mailing and transfer taxes, if any, the obligations and liabilities allocated to
the Current Fund to become the obligations and liabilities of the New Fund, and
(2) to deliver, in accordance with paragraph (b) of this Section 1, full and
fractional New Shares, equal in number to the number of full and fractional
Current Shares outstanding immediately prior to the Effective Date of the
Reorganization. The transactions contemplated hereby are intended to qualify as
a reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
b. In order to effect such delivery, the New Fund will establish an
open account for each shareholder of the Current Fund and, on the Effective Date
of the Reorganization, will credit to such account full and fractional New
Shares of the New Fund equal to the number of full and fractional Current Shares
such shareholder holds in the Current Fund at 5:00 p.m., New York time on the
business day immediately preceding the Effective Date of the Reorganization;
fractional shares of the New Fund will be carried to the third decimal place. On
the Effective Date of the Reorganization, the net asset value per share of
beneficial interest of the New Fund shall be deemed to be the same as the net
asset value per share of beneficial interest of the Current Shares of the
Current Fund at 5:00 p.m., New York time on the business day immediately
preceding the Effective Date of the Reorganization. On the Effective Date of the
Reorganization, each certificate representing Current Shares of the Current Fund
will represent the same number of shares of New Shares of the New Fund. Each
shareholder of the Current Fund will have the right to exchange his (her) share
certificates for share certificates of the New Fund. However, a shareholder need
not make this exchange of certificates unless he (she) so desires.
Simultaneously with
820463.2
<PAGE>
the crediting of New Shares of the New Fund to the shareholders of record of the
Current Fund, the Current Shares of the Current Fund held by such shareholder
shall be canceled.
2. CLOSING AND EFFECTIVE DATE OF THE REORGANIZATION.
The Reorganization shall become effective on the date and at the time
the Articles of Merger reflecting the Reorganization shall become effective with
the State Department of Assessments and Taxation of the State of Maryland
("Effective Date of the Reorganization"). The Closing shall take place on the
date that the Effective Time occurs, or at such later date as the parties may
mutually agree. The Articles of Merger shall be filed no later than three
business days immediately following the later of receipt of all necessary
regulatory approvals and the final adjournment of the meeting of shareholders of
the Current Fund at which this Agreement will be considered.
3. CONDITIONS PRECEDENT.
The obligations of the Current Fund and the New Fund to effectuate the
Reorganization hereunder shall be subject to the consummation of the
transactions contemplated by that certain Asset Purchase Agreement, dated as of
March 12, 1999, by and among Lepercq, de Neuflize & Co. Incorporated, Kinetics
Asset Management, Inc. and the shareholders of Kinetics Asset Management, Inc.
4. TERMINATION.
The Board of Directors of the Current Fund may terminate this Agreement
and abandon the Reorganization contemplated hereby, notwithstanding approval
thereof by the shareholders of the Current Fund, at any time prior to the
Effective Date of the Reorganization if, in the judgment of such Board, the
facts and circumstances make proceeding with this Agreement inadvisable.
5. 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.
6. FURTHER ASSURANCES.
The Current Fund and the New Fund shall take such further action as may
be necessary or desirable and proper to consummate the transactions contemplated
hereby.
7. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
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8. 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, the New Fund and the Current Fund have each caused
this Agreement and Plan of Reorganization to be executed on its behalf by its
President and attested by its Secretary, all as of the day and year first above
written.
THE INTERNET FUND, INC.
Attest: (a New York corporation)
By:____________________________ By:______________________________
Francis J. Alexander President
Secretary
THE INTERNET FUND, INC.
Attest: (a Maryland corporation)
By:____________________________ By:______________________________
Francis J. Alexander President
Secretary
820463.2
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Exhibit F
DIFFERENCES BETWEEN THE LEGAL STRUCTURE OF A
MARYLAND CORPORATION AND A NEW YORK CORPORATION
Unless otherwise defined in this Exhibit, capitalized terms have the
meanings set forth in Proposal Four.
The Internet Fund, Inc. is organized as a New York corporation and may
be referred to herein as the "Current Fund." This discussion provides a summary
of the material differences between the legal structure of an investment company
organized as a Maryland corporation and subject to the Maryland Code (the "New
Fund"), and an investment company organized as a New York corporation under the
New York Business Corporation Law (the "Business Corporation Law"). The
different legal structures are considered by contrasting the provisions of the
Certificate of Incorporation (the "Current Fund Charter") and Bylaws of the
Current Fund with the Certificate of Incorporation (the "New Fund Charter") and
Bylaws of the New Fund, as well as the respective laws applicable to such
entities.
The following is a discussion of certain differences between the
Current Fund Charter, the New Fund Charter, the respective Bylaws of each of the
Current Fund and the New Fund and the Maryland Code, and the Business
Corporation Law. This discussion is not intended to be complete and is qualified
in its entirety by reference to the provisions of the Current Fund Charter and
the New Fund Charter and respective Bylaws of the Current Fund and the New Fund,
the Maryland Code and the Business Corporation Law.
GOVERNING DOCUMENTS. In order to form a Maryland corporation, one or
more adult individuals must sign and acknowledge articles of incorporation which
contain statutorily required provisions and file them for record with the State
Department of Assessments and Taxation of Maryland. The shareholders of a
Maryland corporation are subject to the Maryland Code, the charter (as defined
in the Maryland Code, "Charter") of the corporation and its bylaws. The business
and affairs of a Maryland corporation are managed under the direction of a Board
of Directors.
In order to form a New York corporation, one or more natural persons of
the age of eighteen years or over must sign, acknowledge and deliver a
certificate of incorporation to the New York Department of State. The
shareholders of a New York corporation are subject to the Business Corporation
Law, the Certificate of Incorporation of the corporation and its bylaws. The
business and affairs of a New York corporation are managed under the direction
of its Board of Directors, each of whom shall be at least eighteen years of age.
SHAREHOLDER VOTING RIGHTS AND MEETINGS. Shareholders of both a Maryland
corporation and a New York corporation are subject to the voting requirements
contained in the 1940 Act for electing and removing trustees/directors,
selecting auditors and approving investment advisory agreements and plans of
distribution.
The New Fund Charter, consistent with the Maryland Code, provides that
the holder of each share of stock of the New Fund is entitled to one vote for
each full share, and a fractional vote for each fractional share of stock,
irrespective of the series or class. The New Fund Charter goes on to state that,
on any matter submitted to a vote of shareholders, all shares of the corporation
then issued and outstanding and entitled to vote, irrespective of series or
class, shall be voted in the aggregate and not
819180.3
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by series or class except when (1) otherwise expressly required by the Maryland
Code; (2) required by the 1940 Act, then shares shall be voted by individual
series or class; and (3) the matter does not affect any interest of the
particular series or class, then only shareholders of the affected series or
class shall be entitled to vote thereon, unless otherwise expressly provided in
the corporation's Charter.
With respect to voting by series or class, the Current Fund Charter is
silent and defers to the Business Corporation Law which is similar to the New
Fund Charter. The Maryland Code and the New Fund Charter provide that single
class voting will apply unless the 1940 Act or the Maryland Code provide
otherwise. Pursuant to the New Fund Charter, as a general matter, the holders of
the common shares and preferred shares have equal voting rights with one vote
per share and will vote together as a single class. No fractional preferred
shares may be issued or voted. Under the New Fund Charter there are
circumstances under which the holders of the common shares and preferred shares
vote separately; where a separate vote is required by the 1940 Act or by the
Maryland Code, the Current Fund Charter does not address classes of shares or
voting, and thus defaults to the Business Corporation Law.
MATTERS REQUIRING SHAREHOLDER APPROVAL. Under the Maryland Code and the
New Fund Charter, shareholder approval by a two-thirds majority of all votes
entitled to be cast on the matter is required to approve: (1) amendments of the
Charter except as described below; (2) a consolidation, merger, share exchange
or transfer of assets, including a sale of all or substantially all of the
assets of the corporation; (3) a distribution in partial liquidation; or (4) a
voluntary dissolution.
Shareholders of the New Fund are also entitled to vote on (1)
amendments of the Charter except as described below; (2) election or removal of
directors; (3) a consolidation, merger, share exchange or transfer of assets,
including a sale of all or substantially all the assets of the corporation; (4)
a voluntary dissolution; (5) a conversion of the corporation from a closed-end
investment company to an open-end investment company; (6) any matter to the same
extent as the shareholders of a Maryland corporation as to whether or not a
court action, proceeding or claim should be brought or maintained derivatively
or as a class action on behalf of the corporation or the shareholders; or (7)
such additional matters as may be required or authorized by law, the 1940 Act,
the Charter, the bylaws or any registration with a securities regulatory
authority, as the directors may consider necessary or desirable. The vote
required to approve such matters under the New Fund Charter is the same as that
required under the Current Fund Charter.
Under both the Maryland Code and the Business Corporation Law, there
are specific provisions with respect to amendments of the Charter and the
certificate of incorporation. Under the Business Corporation Law, amendment of
the certificate of incorporation may be authorized by a vote of the board of
directors, followed by a vote of a majority of all outstanding shares entitled
to vote thereon at a meeting of the shareholders, provided, however, that
whenever the Certificate of Incorporation shall require action by the board of
directors, by the holders of any class or series of shares or by the holders of
any other securities having voting power, the vote of a greater number or
proportion than is required by the Business Corporation Law, the provision of
the Certificate of Incorporation requiring such greater vote shall not be
altered, amended, or repealed except by such greater vote. The Maryland Code
provides that if there is any stock outstanding or subscribed for entitled to be
voted on a Charter amendment the proposed amendment shall be approved by the
819180.3
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<PAGE>
shareholders of the corporation by the affirmative vote of two-thirds of all the
votes entitled to be cast on the matter.
In the case of the Current Fund, because it was already in existence on
February 22, 1998 and the Current Fund Charter did not expressly allow for a
vote of a majority of all shares entitled to vote to be sufficient, certain
fundamental corporate actions including: (1) a plan of merger or consolidation;
or (2) a sale, lease, exchange or other disposition of all or substantially all
the assets of a corporation, if not made in the usual or regular course of the
business actually conducted by such corporation, require approval of two-thirds
of the votes of all outstanding shares entitled to vote thereon.
The New Fund Charter does not exclusively rely on the application of
default rules as provided by the Maryland Code. In addition, the provisions
relating to shareholder meetings, the qualification, term and number of
directors and the powers of directors, the removal of directors and the power of
directors to fill director vacancies, which are in the Bylaws, may be amended by
a majority of the entire board of directors. Finally, the New Fund Charter and
Bylaws have no provisions relating to the requirements applicable to removed
directors, the continuation of the corporation despite loss of one or all the
directors, and the nature of the ownership of assets of the corporation by the
directors or shareholders because such provisions are not relevant or necessary
under the Maryland Code.
The Current Fund Charter may be amended by director action only in
order to (1) specify or change the location of the corporation's office; (2) to
specify or change the post office address to which the secretary of state shall
mail a copy of any process against the corporation served upon him; (3) to make,
revoke or change the designation of a registered agent, or to specify or change
the address of its registered agent.
The New Fund Charter does not include a corresponding provision for
amendments of the Charter. Under the Maryland Code, the board of directors of
the New Fund (an open-end investment company) may amend the New Fund Charter to
change the name of the New Fund or the name or other designation of any classes
or series of shares without approval of the shareholders. The Business
Corporation Law requires shareholder approval to change the names of the New
Fund or the name or other designation of any classes or series of shares.
REMOVAL OF DIRECTORS. Unless the Charter provides otherwise, the
Maryland Code requires a plurality of all the votes cast at a meeting at which a
quorum is present for the election of directors. Unless the Charter provides
otherwise, the Maryland Code provides that the shareholders may remove any
director, with or without cause, by the affirmative vote of a majority of all
the votes entitled to be cast for the election of directors. Unless the Charter
of the corporation provides otherwise: (1) if the shareholders of any class or
series are entitled separately to elect one or more directors, a director
elected by a class or series may not be removed without cause except by the
affirmative vote of a majority of all the votes of that class or series; (2) if
the corporation has cumulative voting for the election of directors and less
than the entire board is to be removed, a director may not be removed without
cause if the votes cast against his removal would be sufficient to elect him if
then cumulatively voted at an election of the entire board of directors, or, if
there is more than one class of directors, at an election of the class of
directors of which he is a member; (3) if the directors have been divided into
classes, a director may not be removed without cause.
819180.3
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<PAGE>
The Business Corporation Law provides that any or all of the directors
may be removed for cause by vote of the shareholders. The certificate of
incorporation or the bylaws may provide for such removal without cause by vote
of the shareholders or by action of the board. However, such removal is subject
to the following mandatory restrictions: (1) in the case of a corporation having
cumulative voting, no director may be removed when the votes cast against his
removal would be sufficient to elect him if voted cumulatively at an election at
which the same total number of votes were cast and the entire board, or the
entire class of directors of which he is a member, where then being elected; and
(2) when, by the provisions of the certificate of incorporation, the holders of
the shares of any class or series, or holders of bonds voting as a class are
entitled to elect one or more directors, any director so elected may be removed
only by the applicable vote of the holders of the shares of that class or
series, or the holders of such bonds, voting as a class.
QUORUM REQUIREMENTS. The Maryland Code, the Business Corporation Law
and the Bylaws of the New Fund provide that the presence in person or by proxy
of the holders of record of a majority of the outstanding shares of stock
entitled to vote shall constitute a quorum, except as provided otherwise by the
relevant Charter or the 1940 Act. When a quorum is present, a majority of the
shares entitled to vote held by shareholders present in person or by proxy shall
decide any matter unless a different vote is required under the relevant law,
the 1940 Act or the relevant Charter. The Bylaws of the New Fund provide that a
plurality of all votes cast at a meeting where a quorum is present shall be
sufficient for the election of a director.
SHAREHOLDERS' MEETINGS. Under the Maryland Code, annual shareholders'
meetings of a registered investment company are not required if the Charter or
bylaws of the company so provide; however, an annual meeting is required to be
held when the 1940 Act requires the election of directors to be acted upon by
shareholders. The Bylaws of the New Fund are consistent with the Maryland Code.
The Business Corporation Law requires an annual shareholders' meeting for the
election of directors and the transaction of other business.
With respect to special meetings of shareholders, the Bylaws of the New
Fund, pursuant to the Maryland Code, provide that special meetings may be called
by the chairman, president or a majority of the members of the board of
directors and shall be called by the secretary upon the written request of the
holders of at least 25% of all shares issued and outstanding and entitled to
vote at the meeting. The special meeting requirements for the Current Fund are
the same as those described above for the New Fund.
ACTION WITHOUT A SHAREHOLDERS' MEETING. Under both the Maryland Code
and the Business Corporation Law, any action required to be approved at a
meeting of the shareholders may also be approved by the unanimous written
consent of the shareholders entitled to vote at such meeting.
RECORD DATE. Both the Maryland Code and the Business Corporation Law
require that the record date for determining which shareholders are entitled to
notice of a meeting, to vote at a meeting, or to certain other rights, such as
the record date for the payment of dividends, may not be more than 90 days and
not less than 10 days before the date on which the meeting or other action
requiring determination will be taken.
819180.3
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<PAGE>
NOTICE OF MEETINGS. Both the Maryland Code and the Business Corporation
Law require that notice of each shareholders' meeting be given to each
shareholder entitled to vote at the meeting and such notice must be given no
more than 90 days and not less than 10 days before a meeting. The Bylaws of the
New Fund are consistent with this provision.
SHAREHOLDER RIGHTS TO INSPECTION. The Maryland Code provides that
during usual business hours a shareholder may inspect and copy the following
corporate documents: bylaws; minutes of shareholders' meetings; annual
statements of affairs; and voting trust agreements. Moreover, one or more
persons who together are, and for at least six months have been, shareholders of
record of at least five percent of the outstanding stock of any class are
entitled to inspect and copy the corporation's books of account and stock ledger
and to review a statement of affairs and a list of shareholders.
The Business Corporation Law provides that any shareholder may inspect
the minutes of the shareholders and a record of shareholders. Upon the written
request of any shareholder, the corporation must provide an annual balance sheet
and profit and loss statement.
DIVIDENDS AND OTHER DISTRIBUTIONS. The Maryland Code allows the payment
of a dividend or other distribution unless, after giving effect to the dividend
or other distribution, (1) the corporation would not be able to pay its debts as
they become due in the usual course of business or (2) the corporation's total
assets would be less than the corporation's total liabilities plus (unless the
corporation's Charter provides otherwise) the amount that would be needed, if
the corporation were to be dissolved at the time of the distribution, to satisfy
the preferential rights under dissolution of shareholders whose preferential
rights upon dissolution are superior to those receiving the distribution.
The Business Corporation Law allows the payment of a dividend or other
distribution unless, after giving effect to the dividend or other distribution,
(1) the corporation would not be able to pay its debts as they become due in the
usual course of business or (2) the corporation's total assets would be less
than the corporation's total liabilities.
SHAREHOLDER/BENEFICIAL OWNER LIABILITY. As a general matter, the
shareholders of both New York and Maryland corporations are not liable for the
obligations of the corporation. Under the Maryland Code, a shareholder of a
Maryland corporation may, however, be liable in an amount of any distribution he
or she accepts knowing that the distribution was made in violation of the
corporation's Charter or the Maryland Code.
DIRECTOR/TRUSTEE LIABILITY. The standard of conduct for directors of a
Maryland corporation is governed by the Maryland Code. A director of a Maryland
corporation is required to perform his or her duties in good faith, in a manner
that he or she reasonably believes to be in the best interests of the
corporation, and with the care that an ordinarily prudent person in a like
position would use under similar circumstances. To the extent that a director
performs his or her duties as required, he or she will be protected from
liability by reason of having been a director. Under the Maryland Code, if it is
established that a director did not perform his or her duties as required by the
Maryland Code, the director who votes or assents to a distribution made in
violation of the Maryland Code or the Charter may be personally liable to the
corporation for the amount of the distribution that exceeds what could have been
made pursuant to the Maryland Code or the Charter.
819180.3
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<PAGE>
Consistent with the provisions of the 1940 Act, nothing in the New Fund
Charter protects the directors or trustees against any liability to which the
director or trustee would otherwise be subject by reason of willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of their office.
INDEMNIFICATION. There is no provision in either the Maryland Code or
the Business Corporation Law relating to indemnification of shareholders.
Neither the New Fund Charter nor the Bylaws of the New Fund contain provisions
relating to indemnification of shareholders. Generally, shareholders of Maryland
and New York corporations are not liable for the obligations of the corporation.
Both the Maryland Code and the Business Corporation Law permit
indemnification of directors and officers. Under the Maryland Code, this right
may be limited by the Charter or bylaws. The New Fund Charter requires
indemnification of officers and directors to the fullest extent permitted by
Maryland Law and the 1940 Act.
Under the Maryland Code and the Business Corporation Law,
indemnification is not permitted if it is established that: (i) the act or
omission of the director was material to the matter giving rise to the
proceeding and was committed in bad faith or was the result of active and
deliberate dishonesty; or (ii) the director received an improper personal
benefit in money, property, or services; or (iii) in the case of a criminal
proceeding, the director had reasonable cause to believe that the act or
omission was unlawful. Under the Maryland Code and the Business Corporation Law,
unless the Charter provides otherwise, indemnification against reasonable
expenses incurred by a director is required for a director who is successful, on
the merits or otherwise, in the defense of a proceeding to which he is made a
party by reason of his service in such capacity.
The New Fund Charter provides that the New Fund shall not indemnify any
officer or director for any liability arising from the willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties involved in the
conduct of such person's office.
819180.3
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