As filed with the Securities and Exchange Commission on October 22, 1999
Registration No. 333-82865
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [X]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. [ ]
JACOB INTERNET FUND INC.
(Exact Name of Registrant as Specified in Charter)
c/o Jacob Asset Management LLC
1675 Broadway
New York, New York 10019
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (212) 698-0700
RYAN I. JACOB
c/o Jacob Asset Management LLC
1675 Broadway
New York, New York 10019
(Name and Address of Agent for Service)
Copy to: MICHAEL R. ROSELLA, Esq.
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
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Approximate Date of Proposed Public Offering: As soon as practicable after this
Registration Statement becomes effective.
It is proposed that this filing will become effective: (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (Date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)
[ ] on (date) pursuant to paragraph (a) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may declare.
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Subject to Completion Dated October__, 1999.
JACOB INTERNET FUND INC.
PROSPECTUS
October , 1999
A mutual fund whose primary investment objective is long-term growth of capital with current income as a secondary objective.
The Securities and Exchange Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Risk/Return Summary. . . . . . . . . . . . . . . . . . . 1 Redemption of Fund Shares. . . . . . . . . .11 Fee Table. . . . . . . . . . . . . . . . . . . . . . . . 3 Pricing of Fund Shares . . . . . . . . . . .14 Investment Objectives, Principal Investment Dividends and Distributions. . . . . . . . .15 Strategies and Related Risks. . . . . . . . . . . . . . .4 Additional Investment Information and Risk Factors . . . 6 Tax Consequences . . . . . . . . . . . . . .15 Management, Organization and Capital Structure . . . . . 7 Distribution Arrangements. . . . . . . . . .16 Purchase of Fund Shares. . . . . . . . . . . . . . . . . 8 |
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any State.
RISK/RETURN SUMMARY
Investment Objectives
The Fund's primary investment objective is to seek long-term growth of capital. Current income is a secondary objective. There is no assurance that the Fund will achieve its investment objectives.
Principal Investment Strategies
The Fund seeks to achieve its investment objectives by investing primarily in common stocks and securities convertible into common stocks of companies engaged in the Internet and Internet-related activities or services. These companies are selected by the investment adviser because they derive a substantial portion of their revenue from Internet or Internet-related businesses or are aggressively developing and expanding their Internet and Internet- related business operations. The investment adviser believes that the Internet offers unique investment opportunities because of its ever-growing popularity among business and personal users alike. The Internet is a collection of connected computers that allows commercial and professional organizations, educational institutions, government agencies, and consumers to communicate electronically, access and share information, and conduct business around the world.
The Fund intends to concentrate (i.e. 25% or more of the Fund's total assets) in securities of companies in the Internet and Internet-related industries. The Fund invests in common stock and other securities of companies whose research and development efforts with respect to Internet usage may result in higher stock values. The investment adviser's overall stock selection is based on an assessment of a company's fundamental prospects. The Fund does not trade in securities for short-term profits, but when circumstances warrant, securities may be sold without regard to the length of time they have been held.
Principal Risks
o The loss of money is a risk of investing in the Fund.
o The value of the Fund's shares and the securities held by the Fund can each decline in value.
o The Fund may involve significantly greater risks and therefore may experience greater volatility than a mutual fund that invests in a variety of industries or does not primarily invest in Internet-related companies.
o Investments in companies in the rapidly changing field of computer/Internet technology face special risks such as competitive pressures and technological obsolescence and may be subject to greater governmental regulation than many other industries.
o The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. In addition, convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality.
o The stocks selected by the investment adviser may decline in value or not increase in value when the stock market in general is rising.
o The investment adviser may not be able to sell stocks at an optimal time or price.
o Investments in smaller capitalized companies may involve greater risks, such as limited product lines, markets and financial or managerial resources.
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o The investment adviser, a newly created entity, has no previous experience managing a mutual fund. However, please refer to the "Adviser" section of this Prospectus for the business background and investment experience of Ryan I. Jacob, the Fund's Chief Portfolio Manager.
Who May Want to Invest in This Fund
This Fund is designed for long-term investors who understand and are willing to accept the risk of loss involved in investing in a fund seeking long-term growth of capital. Investors should consider their investment goals, their time horizon for achieving them, and their tolerance for risks before investing in the Fund. If you seek an aggressive approach to capital growth and can accept the above average level of price fluctuations that this Fund is expected to experience, this Fund could be an appropriate part of your overall investment strategy. The Fund should not represent your complete investment program or be used for short-term trading purposes.
Risk/Return Bar Chart and Table
A bar chart and table will be available to track the Fund's performance once the Fund has been in operation for a full calendar year.
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FEE TABLE
This table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 1.25%
Distribution and/or Service 12b-1 Fees 0.35%
Other Expenses * 0.52%
Total Annual Fund Operating Expenses 2.12%
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Expenses Reimbursed and/or Waived by the
Fund's Adviser (0.12)**
Net Annual Fund Operating Expenses 2.00%
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* "Other Expenses" are based on estimated amounts for the current fiscal year.
** The Adviser has contractually agreed to limit the Total Annual Operating Expenses to no more than 2.00% at least through August 31, 2000. The Adviser is reimbursing and/or waiving fees to the Fund so that you would pay no more than 2.00% on an annualized basis at least through August 31, 2000. To the extent that the Adviser reimburses or waives fees, it may seek payment or reimbursement for three years after the year in which fees were waived or reimbursed. The Fund will not make such payments to the Adviser if the Total Annual Fund Operating Expenses exceed the expense limits in effect at the time these waivers and/or reimbursements are proposed.
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 over 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:
Year 1 Year 3
$265 $814
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INVESTMENT OBJECTIVES, PRINCIPAL INVESTMENT
STRATEGIES AND RELATED RISKS
Investment Objectives. The Fund's primary investment objective is long-term growth of capital. Current income is a secondary objective. There is no assurance that the Fund will achieve its investment objectives.
Principal Investment Strategies. The Fund seeks to achieve its investment objectives by investing primarily in common stocks and securities convertible into common stocks of companies engaged in the Internet and Internet- related activities or services. These companies are selected by the investment adviser because they derive a substantial portion of their revenue from Internet or Internet-related businesses or are aggressively developing and expanding their Internet and Internet-related business operations. The Fund intends to concentrate (i.e. 25% or more of the Fund's total assets) in securities of companies in the Internet and Internet-related industries. Under normal circumstances, at least 80% of its total assets will be invested in such companies.
The investment adviser believes that companies that provide products or services designed for the Internet offer favorable investment opportunities. Accordingly, the Fund seeks to invest in common stock and convertible securities of companies whose research and development efforts may result in higher stock values.
The Internet is a world-wide network of computers designed to permit users to share information and transfer data quickly and easily. The world wide web ("www") is a means of graphically interfacing with the Internet. It is a hyper-text based publishing medium containing text, graphics, interactive feedback mechanisms and links within www documents and to other www documents.
The investment adviser believes that because of rapid advances in the breadth and scope of products and services offered over the Internet, an investment in companies with business operations in this area will offer substantial opportunities for long-term capital appreciation. Of course, prices of common stocks of even the best managed, most profitable corporations are subject to market risk, which means their stock prices can decline. In addition, swings in investor psychology or significant trading by large institutional investors can result in price fluctuations.
The Internet has exhibited and continues to demonstrate rapid growth, both through increasing demand for existing products and services and the broadening of the Internet market. This provides a favorable environment for investment in small to medium capitalized companies. However, the Fund's investment policy is not limited to any minimum capitalization requirement and the Fund may hold securities without regard to the capitalization of the issuer. The investment adviser's overall stock selection for the Fund is not based on the capitalization or size of the company but rather on an assessment of the company's fundamental prospects.
Portfolio securities generally will be selected from companies in the following groups:
o Media and Content Providers: Companies that provide information and entertainment services over the Internet, supported by subscriptions, advertising and/or transactional revenues.
o E-commerce: Companies that sell goods and services using the Internet, and companies that distribute products directly over the Internet.
o Infrastructure: Companies that develop and manufacture solutions to enable businesses to implement Internet strategies.
o Communications: Companies engaged in the transmission of voice, video and data, with emphasis on providers of high speed Internet access.
Buy/Sell Decisions. The investment adviser considers the following factors when buying and selling securities for the Fund: (i) the value of individual securities relative to other investment alternatives, (ii) trends in the determinants of corporate profits, (iii) corporate cash flow, (iv) balance sheet changes, (v) management capability and practices
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and (vi) the economic and political outlook. The Fund does not trade in securities for short-term profits, but when circumstances warrant, securities may be sold without regard to the length of time they have been held.
Risk Factors. The Computer/Internet Technology Area: Companies in the rapidly changing field of computer/Internet technology face special risks. For example, their products or services may not prove commercially successful or may become obsolete quickly. The value of the Fund's shares may be susceptible to factors affecting the computer/Internet technology area and to greater risk and market fluctuation than an investment in a fund that invests in a broader range of portfolio securities not concentrated in any particular industry. As such, the Fund is not an appropriate investment for individuals who are not long-term investors and who, as their primary objective, require safety of principal or stable income from their investments. The computer/Internet technology area may be subject to greater governmental regulation than many other areas and changes in governmental policies and the need for regulatory approvals may have a material adverse effect on these areas. Additionally, companies in these areas may be subject to risks of developing technologies, competitive pressures and other factors and are dependent upon consumer and business acceptance as new technologies evolve.
Smaller Capitalized or Unseasoned Companies: The investment adviser believes that smaller capitalized or unseasoned companies generally have greater earnings and sales growth potential than larger capitalized companies. However, the level of risk will be increased to the extent that the Fund has significant exposure to smaller capitalized or unseasoned companies (those with less than a three-year operating history). Investments in smaller capitalized or unseasoned companies may involve greater risks, such as limited product lines, markets and financial or managerial resources. In addition, less frequently-traded securities may be subject to more abrupt price movements than securities of larger capitalized companies.
Convertible Securities: The Fund may invest in convertible securities, which may include corporate notes or preferred stock, but are ordinarily a long-term debt obligation of the issuer convertible at a stated exchange rate into common stock of the issuer. As with all debt securities, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. However, when the market price of the common stock underlying a convertible security exceeds the conversion price, the price of the convertible security tends to reflect the value of the underlying common stock. As the market price of the underlying common stock declines, the convertible security tends to trade increasingly on a yield basis, and thus may not depreciate to the same extent as the underlying common stock. Convertible securities rank senior to common stocks on an issuer's capital structure and are consequently of higher quality and generally entail less risk than the issuer's common stock.
Temporary Investments. In response to adverse market, economic, political or other conditions, the Fund may invest up to 100% of its assets in U.S. and foreign short-term money market instruments. The Fund may invest up to 35% of its assets in these securities to maintain liquidity. Some of the short-term money instruments in which the Fund may invest include:
o commercial paper;
o certificates of deposit, demand and time deposits and banker's acceptances;
o U.S. government securities; and o repurchase agreements.
To the extent the Fund engages in this temporary, defensive strategy, the Fund may not achieve its investment objectives. The Statement of Additional Information contains more information about the Fund and the types of securities in which it may invest.
Portfolio Turnover. Purchases and sales are made whenever the investment adviser believes it is necessary in order to meet the Fund's investment objectives, other investment policies, and the need to meet redemptions. Fund turnover may involve the payment by the Fund of brokerage and other transaction costs, on the sale of securities, as
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well as on the investment of the proceeds in other securities. The greater the portfolio turnover the greater the transaction costs to the Fund, which could have an adverse effect on the Fund's total rate of return. In addition, funds with high portfolio turnover rates may be more likely than low-turnover funds to generate capital gains that must be distributed to shareholders as taxable income. The Fund will minimize portfolio turnover because it will not seek to realize profits by anticipating short-term market movements and intends to buy securities for long-term capital appreciation under ordinary circumstances.
ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS
Repurchase Agreements. The Fund's portfolio position in cash or cash equivalents may include entering into repurchase agreements. A repurchase agreement is an instrument under which an investor purchases a U.S. Government security from a vendor, with an agreement by the vendor to repurchase the security at the same price, plus interest at a specified rate. Repurchase agreements may be entered into with member banks of the Federal Reserve System or "primary dealers" (as designated by the Federal Reserve Bank of New York) in U.S. Government securities. Repurchase agreements usually have a short duration, often less than one week. The Fund requires continual maintenance by the Fund's custodian of the market value of underlying collateral in amounts equal to, or in excess of, the value of the repurchase agreement including the agreed upon interest. If the institution defaults on the repurchase agreement, the Fund will retain possession of the underlying securities. However, if bankruptcy proceedings are commenced with respect to the seller, realization on the collateral by the Fund may be delayed or limited and the Fund may incur additional costs. In such case the Fund will be subject to risks associated with changes in the market value of the collateral securities. The Fund intends to limit repurchase agreements to transactions with institutions believed by the investment adviser to present minimal credit risk. Repurchase agreements are considered to be loans under the Investment Company Act of 1940.
Foreign Securities. Investments may be made in both domestic and foreign companies. While the Fund has no present intention to invest any significant portion of its assets in foreign securities, it reserves the right to invest not more than 15% of the value of its total assets (at the time of purchase and after giving effect thereto) in the securities of foreign issuers and obligors.
Investments in foreign companies involve certain risks which are not typically associated with investing in domestic companies. An investment may be affected by changes in currency rates and in exchange control regulations. There may be less publicly available information about a foreign company than about a domestic company. Foreign companies are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to domestic companies. Foreign stock markets have substantially less volume than the major U.S. markets and securities of some foreign companies may be less liquid and more volatile than securities of comparable domestic companies. There is generally less government regulation of stock exchanges, brokers and listed companies in foreign countries than in the United States. In addition, with respect to certain foreign countries, there is a possibility of expropriation or confiscatory taxation, political or social instability or diplomatic developments which could affect investments in those countries. Individual foreign economies may differ favorably or unfavorably from the United States' economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.
Borrowing. The Fund may from time to time borrow money from banks for temporary, extraordinary or emergency purposes. Such borrowing will not exceed an amount equal to one-third of the value of the Fund's total assets less its liabilities and will be made at prevailing interest rates. The Fund may not, however, purchase additional securities while borrowings exceed 5% of its total assets. Interest paid on borrowings will reduce net income.
Illiquid Securities. The Fund may invest up to 15% of its net assets in illiquid securities, including restricted securities (i.e., securities subject to certain restrictions on their transfer) and other securities that are not readily marketable, such as repurchase agreements maturing in more than one week, provided, however, that any illiquid
852744.6
securities purchased by the Fund will have been registered under the Securities
Act of 1933 or be securities of a class, or convertible into a class, which is
already publicly traded and the issuer of which is filing reports required by
Section 13 or 15 of the Securities Exchange Act of 1934.
Year 2000 Compliance. As the Year 2000 approaches, an issue has emerged regarding how existing application software programs and operating systems can accommodate this date value. Failure to adequately address this issue could have potentially serious repercussions. The investment adviser is in the process of working with the Fund's service providers to prepare for the Year 2000. Based on information currently available, the investment adviser does not expect that the Fund will incur significant operating expenses or be required to incur material costs to be Year 2000 compliant. Although the investment adviser does not anticipate that the Year 2000 issue will have a material impact on the Fund's ability to provide service at current levels, there can be no assurance that steps taken in preparation for the Year 2000 will be sufficient to avoid any adverse impact on the Fund. The Year 2000 problem may also adversely affect issuers of the Securities contained in the Fund to varying degrees based upon various factors, and these may have a corresponding adverse effect on the Fund's performance. The investment adviser is unable to predict what effect, if any, the Year 2000 problem will have on such issuers.
MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
Adviser. Jacob Asset Management LLC (the "Adviser"), a registered investment adviser, is a Delaware limited liability company with its principal office located at 1675 Broadway, New York, New York 10019. Pursuant to the Investment Advisory Agreement for the Fund, the Adviser manages the Fund's portfolio of securities and makes the decisions with respect to the purchase and sale of investments, subject to the general control of the Board of Directors of the Fund. The Adviser will also be responsible for overseeing the performance of the Fund's administrator.
Ryan I. Jacob, founder and Chief Executive Officer of the Adviser, as well as President and Chief Investment Officer of the Fund, is primarily responsible for the day-to-day management of the Fund's portfolio. Mr. Jacob served as Chief Portfolio Manager of The Internet Fund, Inc. from December 20, 1997 through June 24, 1999. The Internet Fund, Inc. and the Fund are managed in substantially similar styles. The cumulative total return for The Internet Fund, Inc. from December 20, 1997 through June 24, 1999 was 516.98 %. At June 30, 1999, that fund had over $715 million in net assets. As Chief Portfolio Manager of The Internet Fund, Inc., Mr. Jacob had full discretionary authority over the selection of investments for that fund.
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The following is the historical performance of The Internet Fund, Inc. The Internet Fund, Inc. is a separate fund and its historical performance is not indicative of the future performance of this Fund. Share prices and investment returns will fluctuate reflecting market conditions, as well as changes in company-specific fundamentals of portfolio securities.
Average annual returns of The Internet Fund, Inc. for the one-year period ended December 31, 1998 and for the entire period during which Mr. Jacob managed that fund compared with the performance of the Standard & Poor's 500 Composite Stock Total Return Index were:
The Internet Fund, Inc. S&P 500 Index (c)
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(advised by Kinetics Asset
Management, Inc.)
One Year 196.14% 28.58%
December 20 , 1997 232.36% 20.03%
through June 24, 1999
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Mr. Jacob also served as a financial analyst for Lepercq, de Neuflize & Co. Inc. from September 1998 to June 1999 and as an analyst for Horizon Asset Management from October 1994 through August 1998. Mr. Jacob was also an assistant portfolio manager in the private clients group at Bankers Trust from October 1992 through October 1994 and Director of Research for IPO Value Monitor, an investment related research service from 1996 to August 1998. Mr. Jacob, a graduate of Drexel University, has over 8 years of investment management experience.
Adviser's Fees. Pursuant to the terms of the Investment Advisory Agreement, the Fund will pay an annual advisory fee paid monthly equal to 1.25% of the Fund's average daily net assets. This fee is higher than the fee paid by most other mutual funds; however, the Board of Directors believes it to be reasonable in light of the advisory services the Fund receives. Any portion of the advisory fees received by the Adviser may be used by the Adviser to provide investor and administrative services and for distribution of Fund shares. The Adviser may voluntarily waive a portion of its fee or assume certain expenses of the Fund. This would have the effect of lowering the overall expense ratio of the Fund and of increasing yield to investors in the Fund.
PURCHASE OF FUND SHARES
Initial Purchase Period. All subscriptions for shares of the Fund received Minimum Investment during the 10 business days from the date of this Prospectus will be deposited $2,500 in a non-interest-bearing escrow account. At the close of business of the 10th ($1,000 for IRA, UGMA, business day, all proceeds from investor subscriptions will be forwarded to 401(k) and other retirement Firstar Mutual Fund Services, LLC (the "Transfer Agent"). The Transfer Agent accounts) will then issue shares of the Fund equal in value to the amount subscribed for Additional Investment by each subscriber. The escrow account will be maintained with Firstar Bank, $100 N.A., the Fund's custodian. |
Subsequent to the initial purchase period, you may purchase shares at the next determined net asset value after the Transfer Agent receives and accepts your order. The Fund sells (and redeems) its shares on a continuous basis at net asset value ("NAV") and does not apply any sales charges. To purchase shares, you need to invest at least $2,500 initially. Investments made under the Uniform Gift to Minor's Act, an IRA account, 401(k) plan, or other retirement accounts need to invest only $1,000 to start. Once you have an account with the Fund, you may make additional investments in amounts as low as $100.
The Fund reserves the right to vary the initial and subsequent minimum investment requirements at any time.
How To Open An Account:
By Mail
Complete and sign the New Account Application and make a check or money order payable to Jacob Internet Fund.
$2,500 minimum. $1,000 minimum for IRA, UGMA, 401K and other retirement accounts.
Any lesser amount must be approved by the Fund.
Mail to:
JACOB INTERNET FUND Overnight or Express Mail to:
c/o Firstar Mutual Fund Services, LLC JACOB INTERNET FUND
P.O. Box 701 c/o Firstar Mutual Fund Services, LLC
Milwaukee, WI 53201-0701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53202
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Setting up an IRA account? Please call the Fund at 1-888-JACOBFX (1-888-522-6239) for details. All checks and money orders must be in U.S. Dollars only. No cash will be accepted.
NOTE: The Transfer Agent charges a $25 fee for any returned checks due to insufficient funds. You will be responsible for any losses suffered by the Fund as a result.
By Wire
Please call the Fund at 1-888-JACOBFX to notify the Fund that the wire is coming and to verify the proper wire instructions so that the wire is properly applied when received. The Fund is not responsible for delays resulting from the banking or Federal Reserve wire system.
Immediately send a completed New Account Application form to the Fund at the above address to have all accurate information recorded to your account. Your purchase request should be wired through the Federal Reserve Bank as follows:
Firstar Bank Milwaukee, N.A. Credit to: Firstar Mutual Fund Services, LLC 777 East Wisconsin Avenue Account Number: 112-952-137 Milwaukee, Wisconsin 53202 Further credit to: Jacob Internet Fund ABA Number: 075000022 Your account name and account number |
(For new accounts, include taxpayer identification number)
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How To Purchase Additional Shares:
By Mail
You may add to your account at any time by mailing the remittance form which is attached to your individual account statement along with any subsequent investments. All requests must include your account registration number in order to assure that your funds are credited properly.
By Wire
Please follow the wiring instructions detailed above.
By Telephone
If you have completed the appropriate section of the New Account Application or if you make subsequent arrangements in writing, you may purchase additional shares by telephoning the Fund toll-free at 1-888-JACOBFX. This option allows investors to move money from their predesignated bank account to their Fund account upon request. Only bank accounts held at domestic institutions that are Automated Clearing House (ACH) members may be used for telephone transactions.
To have your Fund shares purchased at the NAV determined at the close of regular trading on a given date, the Transfer Agent must receive both your purchase order and payment by Electronic Funds Transfer through the ACH System before the close of regular trading on that date. You may not use telephone transactions for your initial purchase of Fund shares.
The Fund may alter, modify or terminate the telephone purchase option at any
time. The minimum amount that can be transferred by telephone is $100. For more
information about telephonic transactions, please call the Fund at
1-888-JACOBFX.
By Internet
This option allows you to purchase additional shares directly through the Fund's website at www.JacobInternet.com. To choose this option, complete the appropriate section of the New Account Application or make subsequent arrangements in writing. Only bank accounts held at a domestic institution which is an ACH member may be used for internet transactions.
To have your Fund shares purchased at the NAV determined at the close of regular trading on a given date, the Transfer Agent must receive both your purchase order and payment via ACH transfer before the close of regular trading on that date. You may not use internet transactions for your initial purchase of Fund shares.
The Fund may alter, modify or terminate the internet purchase option at any time. The minimum amount that can be transferred by internet is $100. For more information about internet transactions, please call the Fund at 1-888-JACOBFX.
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By Automatic Investment Plan
You may purchase additional shares of the Fund through an Automatic Investment Plan which allows monies to be deducted directly from your checking, savings or bank money market accounts to invest in the Fund. You may make automatic investments on a weekly, monthly, bi-monthly (every other month) or quarterly basis.
Minimum initial investment $1000 Subsequent monthly investments $ 100
You are eligible for this plan if your bank account is maintained at a domestic financial institution which is an ACH member.
The Fund may alter, modify or terminate this Plan at any time. For information about participating in the Automatic Investment Plan, please call the Fund at 1-888-JACOBFX.
Investing Through Brokers or Agents. You may invest in the Fund through brokers or agents who have entered into selling agreements with the Fund's distributor. Investors may be charged a fee by the broker or agent they transact through. The broker or agent may set their own initial and subsequent investment minimums.
Receipt of Orders. Shares may only be purchased on days the New York Stock Exchange and the Federal Reserve wire system are open for business. If you are paying with federal funds (wire), your order will be considered received when Firstar Bank Milwaukee, N.A. receives the federal funds. When making a purchase request in writing, make sure your request is in good order. "Good order" means your letter of instruction includes:
o the name of the fund
o the dollar amount of shares to be purchased
o purchase application or investment slip
o check payable to Jacob Internet Fund
The Fund does not consider the U.S. Postal Service or other independent delivery services to be its agents. Therefore, deposits in the mail or with such services, or receipt at the Transfer Agent's post office box of purchase applications or redemption requests do not constitute receipt by the Transfer Agent or the Fund.
Timing of Requests. All requests received and accepted by the Transfer Agent before 4:00 p.m. (Eastern time) will be executed on that same day. Requests received after 4:00 p.m. will be processed on the next business day.
REDEMPTION OF FUND SHARES
When Redemption Proceeds Are Sent to You. You may redeem your shares at any time without a charge. Once the Transfer Agent receives and accepts your redemption request, your request will be processed at the next determined NAV. If you purchase shares by check or ACH transfer and request a redemption soon after the purchase, the Fund will honor the redemption request, but will not mail the proceeds until your purchase check has cleared (usually within 12 days). If you make a purchase by check or ACH transfer that does not clear, the purchase will be canceled and you will be responsible for any losses or fees incurred in that transaction.
A redemption request received and accepted before 4:00 p.m. (Eastern time) will normally be wired to the bank you indicate on the following business day or mailed on the following business day to the address of record; in the case of redemptions via ACH transfer, proceeds will normally be sent to the bank you indicate on the second business day after the redemption request has been received and accepted. In no event will proceeds be wired, mailed or transferred through the ACH system more than 7 days after the Transfer Agent receives and accepts a redemption request. If the proceeds of the redemption are requested to be sent to an address other than the address of record or
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if the address of record has been changed within 15 days of the redemption request, the request must be in writing with your signature(s) guaranteed. The Fund is not responsible for interest on redemption amounts due to lost or misdirected mail.
The Fund and the Transfer Agent each reserve the right to refuse a wire, telephone or internet redemption if it is believed advisable to do so. Procedures for redeeming Fund shares by wire, telephone or internet may be modified or terminated at any time by the Fund.
How To Redeem Shares:
By Mail
Send written redemption requests to:
Jacob Internet Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
If a redemption request is inadvertently sent to the Fund at its corporate address, it will be forwarded to the Transfer Agent and the effective date of redemption will be delayed until the request is received by the Transfer Agent.
The Fund cannot honor any redemption requests with special conditions or which specify an effective date other than as provided.
When making a redemption request, make sure your request is in good order. "Good order" means your letter of instruction includes:
o the name of the fund
o the number of shares or the dollar amount of shares to be redeemed
o the account registration number
o signatures of all registered shareholders exactly as the shares are
registered
Account Registration: Signature Requirements:
Individual, Joint Tenants, Sole Proprietorship, Redemption requests
Custodial (UGMA), General Partners must be signed by all
person(s) required to
sign for the account,
exactly as it is
registered.
Corporations, Associations Redemption request and
a corporate resolution,
signed by person(s)
required to sign for
the account,
accompanied by
signature guarantee(s).
Trusts Redemption request
signed by the
trustee(s), with a
signature guarantee.
(If the Trustee's name
is not registered on
the account, a copy of
the trust document
certified within the
past 60 days is also
required.)
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By Telephone
If you are set up to perform telephone transactions (either through your New Account Application or by subsequent arrangements in writing), you may redeem shares in any amount up to $50,000 by instructing the Fund by telephone
852744.6
at: 1-888-JACOBFX. You must redeem at least $100 for each telephone redemption. Redemption requests for amounts exceeding $50,000 must be made in writing. A signature guarantee is required of all shareholders in order to change telephone redemption privileges.
By Internet
If you are set up to perform internet transactions (either through your New Account Application or by subsequent arrangements in writing), you may redeem shares in any amount up to $50,000 through the Fund's website at www.JacobInternet.com. You must redeem at least $100 for each internet redemption. Redemption requests for amounts exceeding $50,000 must be made in writing. A signature guarantee is required of all shareholders in order to change internet redemption privileges.
By Systematic Withdrawal Plan
If you own shares with a value of $10,000 or more, you may participate in the Systematic Withdrawal Plan. The Fund's systematic withdrawal option allows you to move money automatically from your Fund account to your bank account according to the withdrawal schedule you select. To select the systematic withdrawal option, you must check the appropriate box on the New Account Application. The minimum systematic withdrawal amount is $100.
If you expect to purchase additional Fund shares, it may not be to your advantage to participate in the Systematic Withdrawal Plan because contemporaneous purchases and redemptions may result in adverse tax consequences.
For further details about this service, see the New Account Application or call the Fund at 1-888-JABOCFX.
Electronic Transfers. The proceeds of a redemption can be sent directly to your bank account via wire or ACH transfer. You can elect these options by completing the appropriate section of the New Account Application or making subsequent arrangements in writing. In order to arrange for redemption by wire or ACH transfer after an account has been opened, or to change the bank or account designated to receive redemption proceeds, a written request must be sent to the Fund at the address listed above. If the proceeds are sent by wire, Firstar will assess a $12.00 wire fee. If money is moved via ACH transfer, you will not be charged by the Fund for these services. There is a $100 minimum per transfer.
Telephone/Internet Requests. Neither the Fund nor any of its service contractors will be liable for any loss or expense in acting upon any telephone or internet instructions for redemptions that are reasonably believed to be genuine. The Fund will use reasonable procedures to attempt to confirm that all telephone and internet instructions are genuine such as requesting that a shareholder provide:
Telephone Internet
o the name in which the account is o the name in which the account is
registered, and registered,
o the Fund account number or o the Fund account number, and
his/her social security number. his/her Personal Identification
Number (PIN) which can be
established on the web site.
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If the Fund fails to follow these reasonable procedures, it may be liable for any loss due to unauthorized or fraudulent transactions. Telephone and internet redemptions may be difficult during periods of drastic economic or market
852744.6
changes. If you are unable to contact the Fund by telephone or internet, you may also redeem shares by mail following the instructions above.
IRA Redemptions. If you have an IRA, you must indicate on your redemption request whether or not to withhold federal income tax. Redemption requests not indicating an election to have federal tax withheld will be subject to withholding . If you are uncertain of the redemption requirements, please contact Firstar in advance: 1-888-JACOBFX.
Signature Guarantees. Signature guarantees are needed for:
o Redemption requests over $50,000
o Redemption requests to be sent to a different address other than the
address of record
o Changing telephone redemption privileges
Signature guarantees can be obtained from banks and securities dealers, but not from a notary public. The Transfer Agent may require additional supporting documents for redemptions made by corporations, executors, administrators, trustees and guardians. The New Account Application contains appropriate information and a form on which to make the signature guarantee.
Redemptions In-Kind. If your redemption request exceeds the lesser of $250,000 or 1% of the NAV (an amount that would affect Fund operations), the Fund reserves the right to make a "redemption in-kind". A redemption in-kind is a payment in portfolio securities rather than cash. The portfolio securities would be valued using the same method as the Fund uses to calculate its NAV. You may experience additional expenses such as brokerage commissions in order to sell the securities received from the Fund. In-kind payments do not have to constitute a cross section of the Fund's portfolio. The Fund will not recognize gain or loss for federal tax purposes on the securities used to complete an in-kind redemption, but you will recognize gain or loss equal to the difference between the fair market value of the securities received and your basis in the Fund shares redeemed.
Accounts with Low Balances. Due to the high cost of maintaining accounts with low balances, the Fund may mail you a notice if your account falls below $2,500, other than as a result of a decline in the value per share of the Fund, requesting that you bring the account back up to $2,500 or close it out. If you do not respond to the request within 30 days, the Fund may close your account and send you the proceeds.
PRICING OF FUND SHARES
How NAV is Determined. The net asset value per share ("NAV") is equal to the value of the Fund's securities, cash and other assets less all expenses and liabilities divided by the number of shares outstanding. The net asset value is determined once daily on Monday through Friday as of the close of business of the New York Stock Exchange on each day that the Exchange is open. The Fund does not determine net asset value on the following holidays:
/ / New Year's Day / / Good Friday / / Labor Day / / Martin Luther King, Jr. Day / / Memorial Day / / Thanksgiving Day / / Presidents' Day / / Independence Day / / Christmas Day
The Fund's portfolio securities are valued each day at the last quoted sales price on each security's principal exchange. If market quotations are not readily available, securities will be valued at their fair market value as determined in good faith, or in accordance with procedures approved by the Board of Directors. The Fund may use independent pricing services to assist in calculating the NAV. In addition, if the Fund owns any foreign securities which are traded on foreign exchanges that are open on weekends or other days when the Fund does not price its shares, the NAV may change on days when shareholders will not be able to purchase or redeem Fund shares.
852744.6
RETIREMENT PLANS
Shares of the Fund are available for use in tax-deferred retirement plans such as:
o IRAs,
o employer-sponsored defined contribution plans (including 401(k)
plans), and
o tax-sheltered custodial accounts described in Section 403(b)(7) of the
Internal Revenue Code.
Application forms and brochures describing investments in the Fund for retirement plans can be obtained by calling the Fund at 1-888-JACOBFX.
DIVIDENDS AND DISTRIBUTIONS
At least 90% of the Fund's net investment income will be declared as dividends and paid annually. If an investor's shares are redeemed prior to the date on which dividends are normally declared and paid, accrued but unpaid dividends will be paid with the redemption proceeds. Substantially all the realized net capital gains of the Fund, if any, are declared and paid on an annual basis. Dividends are payable to investors of record at the time of declaration. For a discussion of the taxation of dividends or distributions, see "Tax Consequences."
The net investment income of the Fund for each business day is determined immediately prior to the determination of NAV. Net investment income for other days is determined at the time NAV is determined on the prior business day. Shares of the Fund earn dividends on the business day their purchase is effective but not on the business day their redemption is effective.
Choosing a Distribution Option. Distribution of dividends from the Fund may be made in accordance with several options. A shareholder may select one of four distribution options:
1. Automatic Reinvestment Option. Both dividends and capital gains distributions will be automatically reinvested in additional shares of the Fund unless the investor has elected one of the other three options.
2. Cash Dividend Option. Dividends will be paid in cash, and capital gains will be reinvested in additional shares.
3. Cash Capital Gain Option. Capital gains will be paid in cash and dividends will be reinvested in additional shares.
4. All Cash Option. Both dividends and capital gains distributions will be paid in cash.
TAX CONSEQUENCES
The Fund intends to elect, effective for its tax year ending August 31, 2000, to qualify under the Internal Revenue Code of 1986, as a regulated investment company. Qualification as a regulated investment company relieves the Fund of Federal income tax on net ordinary income and net long-term capital gains paid out to its stockholders. The Fund has adopted a policy of declaring dividends annually. The Fund's policy is to distribute as dividends each year 100% (and in no event less than 90%) of its investment company taxable income. Distributions of net ordinary income and net short-term capital gains are taxable to stockholders as ordinary income. Although corporate stockholders would generally be entitled to the dividends-received deduction to the extent that the Fund's income is derived from qualifying dividends from domestic corporations, the Fund does not believe that any of its distributions will qualify for this deduction because the Fund believes that its distributions will consist primarily of capital gains.
The excess of net long-term capital gains over net short-term capital losses realized and distributed by the Fund and designated by the Fund as capital gains dividends in a written notice to investors mailed not later than 60 days after the Fund taxable year closes, is taxable to stockholders as long-term capital gains, irrespective of the length of time a
852744.6
stockholder may have held its shares in the Fund. A preferential tax rate for long-term capital gains is currently applicable for non-corporate shareholders. Long-term capital gains distributions are not eligible for the dividends-received deduction referred to above. If a stockholder that sells shares held for six months or less received a distribution taxable as long-term capital gain, any loss realized on the sale of the shares will be a long-term capital loss to the extent of the distribution.
Distributions are taxable to investors whether received in cash or reinvested in additional shares of the Fund. Any dividend or distribution received by a stockholder shortly after the purchase of shares will reduce the net asset value of the shares by the amount of the dividend or distribution. Furthermore, such dividend or distribution is subject to tax even though it is, in effect, a return of capital.
The redemption of shares may result in the stockholder's receipt of more or less than the stockholder paid for its shares and, thus, may result in a taxable gain or loss to the stockholder. If the redeemed shares have been held for more than one year, the stockholder will generally realize a long-term capital gain or loss.
The Fund is required, subject to certain exemptions, to withhold at a rate of 31% from dividends paid or credited to stockholders, and from the proceeds from the redemption of Fund shares, if a correct taxpayer identification number, certified when required, is not on file with the Fund. Corporate stockholders are not subject to this requirement.
DISTRIBUTION ARRANGEMENTS
Distributor. Lepercq, de Neuflize Securities Inc. (the "Distributor") has entered into a distribution agreement with the Fund to serve as the Fund's distributor. The Distributor will be entitled to receive a distribution fee equal to 0.10% of the Fund shares' average daily net assets (the "Distribution Fee") under the terms of the Fund's Rule 12b-1 Plan and will pay the promotional and advertising expenses related to the distribution of the Fund's shares and for the printing of all Fund prospectuses used in connection with the distribution and sale of Fund shares. In addition, pursuant to such distribution agreement, the Distributor may use a portion of the distribution fee to compensate financial intermediaries for providing distribution assistance with respect to the sale of Fund shares. See "Investment Advisory and Other Services" in the Statement of Additional Information.
12b-1 Plan. The Fund has adopted a distribution and service plan, pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"). Rule 12b-1 provides that an investment company which bears any direct or indirect expense of distributing its shares must do so only in accordance with the Plan permitted by Rule 12b-1. The Plan provides that the Fund will compensate the Adviser for certain expenses and costs incurred in connection with providing shareholder servicing and maintaining shareholder accounts and to compensate parties with which it has written agreements and whose clients own shares of the Fund for providing servicing to their clients ("shareholder servicing" ), which is subject to a service fee equal to 0.25% per annum of the Fund's average daily net assets. Because these fees are paid out of the Fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. As noted above, the Plan also provides that the Distributor is paid the Distribution Fee, on an annual basis, to enable it to provide promotional support to the Fund and to make payments to broker-dealers and other financial institutions with which it has written agreements and whose clients are Fund shareholders (each a "broker-dealer") for providing distribution assistance. The Distribution Fee is an "asset based sales charge" and, therefore, long-term shareholders may pay more in total sales charges than the economic equivalent of the maximum front-end sales charge permitted by the National Association of Securities Dealers, Inc. Fees paid under the Plan may not be waived for individual shareholders.
Each shareholder servicing agent that the Adviser retains will, as agent for its customers, among other things: (i) answer customer inquiries regarding account status and history, the manner in which purchases and redemptions of shares of the Fund may be effected and certain other matters pertaining to the Fund; (ii) assist shareholders in designating and changing dividend options, account designations and addresses; (iii) provide necessary personnel and facilities to establish and maintain shareholder accounts and records; (iv) assist in processing purchase and redemption transactions; (v) arrange for the wiring of funds; (vi) transmit and receive funds in connection with customer orders to purchase or
852744.6
redeem shares; (vii) verify and guarantee shareholder signatures in connection
with redemption orders and transfers and changes in shareholder designated
accounts; (viii) furnish (either separately or on an integrated basis with other
reports sent to a shareholder by the Fund) quarterly and year-end statements and
confirmations in a timely fashion after activity is generated in the account;
(ix) transmit, on behalf of the Fund, proxy statements, annual reports, updating
prospectuses and other communications from the Fund to shareholders; (x)
receive, tabulate and transmit to the Fund proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and (xi) provide such other
related services as the Fund or a shareholder may request.
The Plan provides that the Adviser and the Distributor may make payments from time to time from their own resources which may include the advisory fee and past profits for the following purposes: (i) to defray the costs of and to compensate others, including financial intermediaries with whom the Distributor or Adviser has entered into written agreements, for performing shareholder servicing and related administrative functions; (ii) to compensate certain financial intermediaries for providing assistance in distributing the Fund's shares; (iii) to pay the costs 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 Fund's shares. The Distributor or the Adviser, as the case may be, in their sole discretion, will determine the amount of such payments made pursuant to the Plan with the shareholder servicing agents and broker-dealers they have contracted with, provided that such payments made pursuant to the Plan will not increase the amount which the Fund is required to pay to the Distributor or the Adviser for any fiscal year under the shareholder servicing agreements or otherwise. Any servicing fees paid to the Adviser also may be used for purposes of (i) above and any asset based sales charges paid to the Distributor also may be used for purposes of (ii), (iii), or (iv) above.
Shareholder servicing agents and broker-dealers may charge investors a fee in connection with their use of specialized purchase and redemption procedures offered to investors by the shareholder servicing agents and broker-dealers. In addition, shareholder servicing agents and broker-dealers offering purchase and redemption procedures similar to those offered to shareholders who invest in the Fund directly may impose charges, limitations, minimums and restrictions in addition to or different from those applicable to shareholders who invest in the Fund directly. Accordingly, the net yield to investors who invest through shareholder servicing agents and broker-dealers may be less than by investing in the Fund directly. An investor should read the Prospectus in conjunction with the materials provided by the shareholder servicing agent and broker-dealer describing the procedures under which Fund shares may be purchased and redeemed through the shareholder servicing agent and broker-dealer.
JACOB INTERNET FUND INC.
October ___, 1999
Investment Adviser A Statement of Additional Information
Jacob Asset Management LLC (SAI), dated October , 1999 and the
New York, New York Fund's Annual and SemiAnnual Reports
(when available), include additional
Administrator, Fund Accountant information about the Fund and its
and Transfer and Dividend Agent investments and are incorporated by
Firstar Mutual Fund Services, LLC reference into this Prospectus. The
Milwaukee, Wisconsin Fund's Annual Report will contain a
discussion of the market conditions and
Underwriter and Distributor investment strategies that significantly
Lepercq, de Neuflize Securities Inc. affected the Fund's performance during
New York, New York its prior fiscal year. You may obtain
the SAI, the Annual and Semi-Annual
Custodian Reports and material incorporated by
Firstar Bank Milwaukee, N.A. reference without charge by calling the
Milwaukee, Wisconsin Fund at 1-888- JACOBFX. To request other
information or to make inquiries, please
Legal Counsel call your financial intermediary or the
Battle Fowler LLP Fund.
New York, New York
Independent Auditors A Current SAI has been filed with the
PricewaterhouseCoopers LLP Securities and Exchange Commission. You
Milwaukee, Wisconsin may visit the Securities and Exchange
Commission's Internet website
(www.sec.gov) to view the SAI, material
incorporated by reference and other
information. These materials can also be
reviewed and copied at the Commission's
Public Reference Room in Washington, DC.
Information on the operation of the
Public Reference Room may be obtained by
calling the Commission at 1-
800-SEC-0330. In addition, copies of
these materials may be obtained, upon
payment of a duplicating fee, by writing
the Public Reference Section of the
Commission, Washington, DC 20549-6009.
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811-09447
852744.6
JACOB INTERNET FUND INC.
STATEMENT OF ADDITIONAL INFORMATION
October __, 1999
This Statement of Additional Information sets forth information which may be of interest to investors but which is not necessarily included in the Fund's Prospectus, dated October __, 1999 (the "Prospectus").
This Statement of Additional Information is not a prospectus and should be read in conjunction with the Prospectus, a copy of which may be obtained without charge by writing or calling the Fund toll-free at 1-888-JACOBFX. The material relating to the purchase, redemption and pricing of shares has been incorporated by reference into the SAI from the Fund's Prospectus.
This Statement of Additional Information is incorporated by reference into the Prospectus in its entirety.
TABLE OF CONTENTS
Fund History...........................................................1 Capital Stock and Other Securities...................16
Description of the Fund and its Investments and Risks..................1 Purchase, Redemption and Pricing of Shares.......... 16
Management of the Fund .............................................. 8 Taxation of the Fund................................ 16
Control Persons and Principal Holders
of Securities........................................................10 Underwriters........................................ 19
Investment Advisory and Other
Services..............................................................10 Calculation of Performance Data .................... 19
Brokerage Allocation and Other Practices..............................14 Financial Statements................................ 21
------------------------------------------------------------------------ -------------------------------------------------------
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855865.3
I. FUND HISTORY
Jacob Internet Fund Inc. (the "Fund") was incorporated in Maryland on July 13, 1999.
II. DESCRIPTION OF THE FUND AND ITS INVESTMENTS AND RISKS
A. INVESTMENT STRATEGIES AND RISKS
The Fund's primary investment objective is long-term growth of capital, a goal it seeks by investing primarily in common stocks and securities convertible into common stocks of companies engaged in the Internet and Internet-related activities or services. These companies are selected by the Fund's investment adviser because they derive a substantial portion of their revenue from Internet or Internet-related businesses or are aggressively developing and expanding their Internet and Internet-related business operations. Current income is a secondary objective.
Except during temporary defensive periods, not less than 80% of the Fund's total assets will be invested in the securities of companies engaged in Internet and Internet-related activities. As a diversified, open-end management investment company, at least 75% of the Fund's total assets are required to be invested in securities limited in respect of any one issuer to not more than 5% of the Fund's total assets and to not more than 10% of the issuer's voting securities.
B. DESCRIPTION OF THE FUND'S INVESTMENT SECURITIES AND DERIVATIVES
The following expands upon the descriptions in the Prospectus of the types of securities in which the Fund may invest. In addition, this section discusses certain potential Fund investments which were not previously described in the Prospectus.
1. The Computer/Internet Technology Area. The Adviser believes that because of rapid advances in computer/Internet technology, an investment in companies with business operations in these areas will offer substantial opportunities for long-term capital appreciation. Of course, prices of common stocks of even the best managed, most profitable corporations are subject to market risk, which means their stock prices can decline. In addition, swings in investor psychology or significant trading by large institutional investors can result in price fluctuations. The Fund may also invest in the stocks of companies that should benefit from the commercialization of technological advances, although they may not be directly involved in research and development.
The computer/Internet technology area has exhibited and continues to exhibit rapid growth, both through increasing demand for existing products and services and the broadening of the technology market. In general, the stocks of large capitalized companies that are well established in the computer/Internet technology market can be expected to grow with the market and will frequently be found in the Fund's portfolio. The expansion of computer/Internet technology and its related industries, however, also provides a favorable environment for investment in small to medium capitalized companies. The Fund's investment policy is not limited to any minimum capitalization requirement and the Fund may hold securities without regard to the capitalization of the issuer. The Adviser's overall stock selection for the Fund is not based on the capitalization or size of the company but rather on an assessment of the company's fundamental prospects.
Companies in the rapidly changing field of computer/Internet technology face special risks. For example, their products or services may not prove commercially successful or may become obsolete quickly. The value of the Fund's shares may be susceptible to factors affecting the computer/Internet technology area and to greater risk and market fluctuation than an investment in a fund that invests in a broader range of portfolio securities not concentrated in any particular industry. As such, the Fund is not an appropriate investment for individuals who
855865.3
are not long-term investors and who, as their primary objective, require safety of principal or stable income from their investments. The computer/Internet technology area may be subject to greater governmental regulation than many other areas and changes in governmental policies and the need for regulatory approvals may have a material adverse effect on these areas. Additionally, companies in these areas may be subject to risks of developing technologies, competitive pressures and other factors and are dependent upon consumer and business acceptance as new technologies evolve.
2. Foreign Securities. The Fund may invest up to 15% of its assets in foreign securities. It is, however, the present intention of the Fund to limit the investment in foreign securities to no more than 5% of its assets. By investing a portion of its assets in foreign securities, the Fund will attempt to take advantage of differences among economic trends and the performance of securities markets in various countries. To date, the market values of securities of issuers located in different countries have moved relatively independently of each other. During certain periods, the return on equity investments in some countries has exceeded the return on similar investments in the United States. The Adviser believes that, in comparison with investment companies investing solely in domestic securities, it may be possible to obtain significant appreciation from a portfolio of foreign investments and securities from various markets that offer different investment opportunities and are affected by different economic trends. International diversification reduces the effect that events in any one country will have on the Fund's entire investment portfolio. On the other hand, a decline in the value of the Fund's investments in one country may offset potential gains from investments in another country.
Investment in obligations of foreign issuers and in direct obligations of foreign nations involves somewhat different investment risks from those affecting obligations of United States domestic issuers. There may be limited publicly available information with respect to foreign issuers and foreign issuers are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to domestic companies. There may also be less government supervision and regulation of foreign securities exchanges, brokers and listed companies than in the United States. Foreign securities settlements may in some instances be subject to delays and related administrative uncertainties that could result in temporary periods when assets of the Fund are uninvested and no return is earned thereon and may involve a risk of loss to the Fund. Foreign securities markets have substantially less volume than domestic securities exchanges and securities of some foreign companies are less liquid and more volatile than securities of comparable domestic companies. Brokerage commissions and other transaction costs on foreign securities exchanges are generally higher than in the United States. Dividends and interest paid by foreign issuers may be subject to withholding and other foreign taxes, which may decrease the net return on foreign investments as compared to dividends and interest paid to the Fund by domestic companies. Additional risks include future political and economic developments, the possibility that a foreign jurisdiction might impose or increase withholding taxes on income payable with respect to foreign securities, the possible seizure, nationalization or expropriation of the foreign issuer or foreign deposits (in which the Fund could lose its entire investment in a certain market) and the possible adoption of foreign governmental restrictions such as exchange controls. To the extent the Fund invests in foreign securities, shareholders may be subject to additional risks than if the Fund's portfolio contained only domestic securities.
Foreign Currency. Investments in foreign securities will usually be denominated in foreign currency, and the Fund may contemporarily hold funds in foreign currencies. The value of the Fund's investments denominated in foreign currencies may be affected, favorably or unfavorably, by the relative strength of the U.S. dollar, changes in foreign currency and U.S. dollar exchange rates and exchange control regulations. The Fund may incur costs in connection with conversions between various currencies. The Fund's net asset value per share will be affected by changes in currency exchange rates. Changes in foreign currency exchange rates may also affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by the Fund. The rate of exchange between the U.S. dollar and other currencies is determined by the forces of supply and demand in the foreign exchange markets (which in turn are affected by interest rates, trade flow and numerous other factors, including, in some countries, local governmental intervention).
855865.3
3. U.S. Government Obligations. U.S. Government obligations are obligations that are backed by the full faith and credit of the United States, by the credit of the issuing or guaranteeing agency or by the agency's right to borrow from the U.S. Treasury. They include (i) U.S. Treasury obligations, which differ only in their interest rates, maturities and times of issuance as follows: U.S. Treasury bills (maturity of one year or less), U.S. Treasury notes (maturity of one year or ten years), U.S. Treasury bonds (generally maturities of more than ten years), and (ii) obligations issued or guaranteed by U.S. Government agencies and instrumentalities that are supported by the full faith and credit of the United States (such as securities issued by the Government National Mortgage Association, the Federal Housing Administration, the Department of Housing and Urban Development, the Export-Import Bank, the General Services Administration and the Maritime Administration, and certain securities issued by the Farmers' Home Administration and the Small Business Administration, most of which are explained below under the section entitled "Mortgage-Backed Securities"). The maturities of U.S. Government obligations usually range from three months to thirty years.
4. Repurchase Agreements. When the Fund purchases securities, it may enter into a repurchase agreement with the seller wherein the seller agrees, at the time of sale, to repurchase the security at a mutually agreed upon time and price. The Fund may enter into repurchase agreements with member banks of the Federal Reserve System and with broker-dealers who are recognized as primary dealers in United States Government securities by the Federal Reserve Bank of New York. Although the securities subject to the repurchase agreement might bear maturities exceeding one year, settlement for the repurchase would never be more than 397 days after the Fund's acquisition of the securities and normally would be within a shorter period of time. The resale price will be in excess of the purchase price, reflecting an agreed upon market rate effective for the period of time the Fund's money will be invested in the security, and will not be related to the coupon rate of the purchased security. At the time the Fund enters into a repurchase agreement the value of the underlying security, including accrued interest, will be equal to or exceed the value of the repurchase agreement, and, in the case of a repurchase agreement exceeding one day, the seller will agree that the value of the underlying security, including accrued interest, will at all times be equal to or exceed the value of the repurchase agreement. The Fund may engage in a repurchase agreement with respect to any security in which it is authorized to invest, even though the underlying security may mature in more than one year. The collateral securing the seller's obligation must be of a credit quality at least equal to the Fund's investment criteria for securities in which it invests and will be held by the Custodian or in the Federal Reserve Book Entry System.
For purposes of the Investment Company Act of 1940, as amended (the "1940 Act"), a repurchase agreement is deemed to be a loan from the Fund to the seller subject to the repurchase agreement and is therefore subject to the Fund's investment restriction applicable to loans. It is not clear whether a court would consider the securities purchased by the Fund subject to a repurchase agreement as being owned by the Fund or as being collateral for a loan by the Fund to the seller. In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the securities before repurchase of the security under a repurchase agreement, the Fund may encounter a delay and incur costs before being able to sell the security. Delays may involve loss of interest or decline in price of the security. If the court characterized the transaction as a loan and the Fund has not perfected a security interest in the security, the Fund may be required to return the security to the seller's estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, the Fund would be at the risk of losing some or all of the principal and income involved in the transaction. As with any unsecured debt obligation purchased for the Fund, the Adviser seeks to minimize the risk of loss through repurchase agreements by analyzing the creditworthiness of the obligor, in this case the seller. Apart from the risk of bankruptcy or insolvency proceedings, there is also the risk that the seller may fail to repurchase the security, in which case the Fund may incur a loss if the proceeds of the sale to a third party are less than the repurchase price. However, if the market value of the securities subject to the repurchase agreement becomes less than the repurchase price (including interest), the Fund involved will direct the seller of the security to deliver additional securities so that the market value of all securities subject to the repurchase agreement will equal or exceed the repurchase price. It is possible that a Fund will be unsuccessful in seeking to impose on the seller a contractual obligation to deliver additional securities.
855865.3
5. Hedging Transactions. The Fund may, but does not currently intend to, enter into hedging transactions. Hedging is a means of transferring risk which an investor does not desire to assume during an uncertain market environment. The Fund is permitted to enter into the transactions solely (a) to hedge against changes in the market value of portfolio securities or (b) to close out or offset existing positions. The transactions must be appropriate to reduction of risk; they cannot be for speculation. In particular, the Fund may write covered call options on securities or stock indices. By writing call options, the Fund limits its profit to the amount of the premium received. By writing a covered call option, the Fund assumes the risk that it may be required to deliver the security having a market value higher than its market value at the time the option was written. The Fund will not write options if immediately after such sale the aggregate value of the obligations under the outstanding options would exceed 25% of the Fund's net assets.
To the extent the Fund uses hedging instruments which do not involve specific portfolio securities, offsetting price changes between the hedging instruments and the securities being hedged will not always be possible, and market value fluctuations of the Fund may not be completely eliminated. When using hedging instruments that do not specifically correlate with securities in the Fund, the Adviser will attempt to create a very closely correlated hedge.
Short Sales. The Fund may make short sales of securities "against-the-box." A short sale "against-the-box" is a sale of a security that the Fund either owns an equal amount of or has the immediate and unconditional right to acquire at no additional cost. The Fund will make short sales "against-the-box" as a form of hedging to offset potential declines in long positions in the same or similar securities.
6. Options Transactions. The Fund may, but does not currently intend to, enter into options transactions. The Fund may purchase call and put options on securities and on stock indices in an attempt to hedge its portfolio and to increase its total return. Call options may be purchased when it is believed that the market price of the underlying security or index will increase above the exercise price. Put options may be purchased when the market price of the underlying security or index is expected to decrease below the exercise price. The Fund may also purchase all options to provide a hedge against an increase in the price of a security sold short by it. When the Fund purchases a call option, it will pay a premium to the party writing the option and a commission to the broker selling the option. If the option is exercised by the Fund, the amount of the premium and the commission paid may be greater than the amount of the brokerage commission that would be charged if the security were purchased directly.
In addition, the Fund may write covered call options on securities or stock indices. By writing options, the Fund limits its profits to the amount of the premium received. By writing a call option, the Fund assumes the risk that it may be required to deliver the security at a market value higher than its market value at the time the option was written plus the difference between the original purchase price of the stock and the strike price. By writing a put option, the Fund assumes the risk that it may be required to purchase the underlying security at a price in excess of its current market value.
7. Lending of Securities. The Fund may lend its portfolio securities to qualified institutions as determined by the Adviser. By lending its portfolio securities, the Fund attempts to increase its income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that may occur during the term of the loan will be for the account of the Fund in such transaction. The Fund will not lend portfolio securities if, as a result, the aggregate of such loans exceeds 33% of the value of its total assets (including such loans). All relevant facts and circumstances, including the creditworthiness of the qualified institution, will be monitored by the Adviser, and will be considered in making decisions with respect to lending of securities, subject to review by the Fund's Board of Directors. The Fund may pay reasonable negotiated fees in connection with loaned securities, so long as such fees are set forth in a written contract and their reasonableness is determined by the Fund's Board of Directors.
855865.3
8. Variable-Amount Master Demand Notes. The Fund may purchase variable amount master demand notes ("VANs"). VANs are debt obligations that provide for a periodic adjustment in the interest rate paid on the instrument and permit the holder to demand payment of the unpaid principal balance plus accrued interest at specified intervals upon a specified number of days' notice either from the issuer or by drawing on a bank letter of credit, a guarantee, insurance or other credit facility issued with respect to such instrument.
The VANs in which the Fund may invest are payable on not more than seven calendar days' notice either on demand or at specified intervals not exceeding one year depending upon the terms of the instrument. The terms of the instruments provide that interest rates are adjustable at intervals ranging from daily to up to one year and their adjustments are based upon the prime rate of a bank or other appropriate interest rate adjustment index as provided in the respective instruments. The Fund will decide which variable rate demand instruments it will purchase in accordance with procedures prescribed by its Board of Directors to minimize credit risks.
The VANs that the Fund may invest in include participation
certificates purchased by the Fund from banks, insurance companies or other
financial institutions in fixed or variable rate, or taxable debt obligations
(VANs) owned by such institutions or affiliated organizations. A participation
certificate gives the Fund an undivided interest in the obligation in the
proportion that the Fund's participation interest bears to the total principal
amount of the obligation and provides the demand repurchase feature described
below. Where the institution issuing the participation does not meet the Fund's
high quality standards, the participation is backed by an irrevocable letter of
credit or guaranty of a bank (which may be a bank issuing a confirming letter of
credit, or a bank serving as agent of the issuing bank with respect to the
possible repurchase of the certificate of participation or a bank serving as
agent of the issuer with respect to the possible repurchase of the issue) or
insurance policy of an insurance company that the Board of Directors of the Fund
has determined meets the prescribed quality standards for the Fund. The Fund has
the right to sell the participation certificate back to the institution and,
where applicable, draw on the letter of credit, guarantee or insurance after no
more than 30 days' notice either on demand or at specified intervals not
exceeding 397 days (depending on the terms of the participation), for all or any
part of the full principal amount of the Fund's participation interest in the
security, plus accrued interest. The Fund intends to exercise the demand only
(1) upon a default under the terms of the bond documents, (2) as needed to
provide liquidity to the Fund in order to make redemptions of the Fund's shares,
or (3) to maintain a high quality investment portfolio. The institutions issuing
the participation certificates will retain a service and letter of credit fee
(where applicable) and a fee for providing the demand repurchase feature, in an
amount equal to the excess of the interest paid on the instruments over the
negotiated yield at which the participations were purchased by the Fund. The
total fees generally range from 5% to 15% of the applicable prime rate* or other
interest rate index. With respect to insurance, the Fund will attempt to have
the issuer of the participation certificate bear the cost of the insurance,
although the Fund retains the option to purchase insurance if necessary, in
which case the cost of insurance will be an expense of the Fund. The Adviser has
been instructed by the Fund's Board of Directors to continually monitor the
pricing, quality and liquidity of the variable rate demand instruments held by
the Fund, including the participation certificates, on the basis of published
financial information and reports of the rating agencies and other bank
analytical services to which the Fund may subscribe. Although these instruments
may be sold by the Fund, the Fund intends to hold them until maturity, except
under the circumstances stated above.
While the value of the underlying variable rate demand instruments may change with changes in interest rates generally, the variable rate nature of the underlying variable rate demand instruments should minimize changes in value of the instruments. Accordingly, as interest rates decrease or increase, the potential for capital appreciation and the risk of potential capital depreciation is less than would be the case with a portfolio of fixed
855865.3
income securities. The Fund may contain VANs on which stated minimum or maximum rates, or maximum rates set by state law, limit the degree to which interest on such VANs may fluctuate. To the extent that the Fund holds VANs with these limits, increases or decreases in value may be somewhat greater than would be the case without such limits. In the event that interest rates increased so that the variable rate exceeded the fixed-rate on the obligations, the obligations could no longer be valued at par and this may cause the Fund to take corrective action, including the elimination of the instruments. Because the adjustment of interest rates on the VANs is made in relation to movements of the applicable banks' "prime rate," or other interest rate adjustment index, the VANs are not comparable to long-term fixed-rate securities. Accordingly, interest rates on the VANs may be higher or lower than current market rates for fixed-rate obligations or obligations of comparable quality with similar maturities.
For purposes of determining whether a VAN held by a Fund matures within 397 days from the date of its acquisition, the maturity of the instrument will be deemed to be the longer of (1) the period required before the Fund is entitled to receive payment of the principal amount of the instrument or (2) the period remaining until the instrument's next interest rate adjustment. If a variable rate demand instrument ceases to meet the investment criteria of the Fund, it will be sold in the market or through exercise of the repurchase demand.
9. Investment Companies. The Fund may purchase securities of other investment companies only to the extent that (i) not more than 5% of the value of the Fund's total assets will be invested in the securities of any one investment company, (ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group, and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Fund, except as such securities may be acquired as part of a merger, consolidation or acquisition of assets and further, except as may be permitted by Section 12(d) of the 1940 Act or by the Securities and Exchange Commission.
C. FUND POLICIES - INVESTMENT RESTRICTIONS
The Fund has adopted the following fundamental investment
restrictions which may not be changed unless approved by a majority of the
Fund's outstanding shares. As used in this Prospectus, the term "majority of the
outstanding shares" of the Fund means, respectively, the vote of the lesser of
(i) 67% or more of the shares of the Fund present at the meeting, if more than
50% of the outstanding shares of the Fund are present or represented by proxy,
or (ii) more than 50% of the outstanding shares of the Fund.
The Fund may not:
(1) Borrow money. This restriction shall not apply to borrowing from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests that might otherwise require the untimely disposition of securities, in an amount up to one-third of the value of the Fund's total assets (including the amount borrowed) valued at market less liabilities (not including the amount borrowed) at the time the borrowing was made.
(2) With respect to 75% of its total assets, the Fund will not invest more than 5% of its assets in the securities of any one issuer (except securities issued or guaranteed by the U.S. Government, its agencies, and instrumentalities).
(3) With respect to 75% of its total assets, the Fund will not invest in the securities of any issuer if as a result the Fund holds more than 10% of the outstanding securities or more than 10% of the outstanding voting securities of such issuer.
(4) Mortgage, pledge or hypothecate any assets except that the Fund may pledge not more than one-third of its total assets to secure borrowings made in accordance with paragraph (2) above.
855865.3
(5) Sell securities short, except short sales "against-the-box," or purchase securities on margin made in connection with hedging transactions.
(6) Underwrite the securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933 in disposing of a portfolio security.
(7) Invest more than an aggregate of 15% of its net assets in illiquid securities, including restricted securities and other securities that are not readily marketable, such as repurchase agreements maturing in more than seven days and variable rate demand instruments exercisable in more than seven days.
(8) Purchase or sell real estate, real estate investment trust securities, commodities or commodity contracts, or oil and gas interests, but this shall not prevent the Fund from investing in obligations secured by real estate or interests in real estate.
(9) Make loans to others, except through the purchase of portfolio investments, including repurchase agreements, exceeding in the aggregate one-third of the market value of the Fund's total assets less liabilities other than obligations created by these transactions as described under "Description of the Fund and Its Investments and Risks."
(10) Invest 25% or more of its assets in the securities of "issuers" in any single industry, except in the computer/Internet technology area as set forth under "Investment Objectives, Principal Investment Strategies and Related Risks" in the Prospectus and provided that there shall be no limitation on the Fund to purchase obligations issued or guaranteed by the United States Government, its agencies or instrumentalities.
(11) Invest in securities of other investment companies, except
(i) the Fund may purchase unit investment trust securities
where such unit investment trusts meet the investment
objective of the Fund and then only up to 5% of the Fund's
net assets, except as they may be acquired as part of a
merger, consolidation or acquisition of assets and (ii) as
permitted by Section 12(d) of the 1940 Act or by the
Securities and Exchange Commission.
(12) Issue senior securities except insofar as the Fund may be deemed to have issued a senior security in connection with any permitted borrowing.
The Fund will not be in violation of any maximum percentage limitation when the change in the percentage of the Fund's holdings is due to a change in value of the Fund's securities. This qualification does not apply to the restriction on the Fund's ability to purchase additional securities when borrowings earn 5% of the value of the Fund's total assets. Investment restrictions that involve a maximum percentage of securities or assets will be violated, however, if an excess over the percentage occurs immediately after, and is caused by, an acquisition of securities or assets of, or borrowings by, the Fund.
D. TEMPORARY DEFENSIVE POSITIONS
When the Adviser believes that market conditions warrant a temporary defensive position, the Fund may invest up to 100% of its assets in short-term instruments such as commercial paper, bank certificates of deposit, bankers' acceptances, variable rate demand instruments or repurchase agreements for such securities and securities of the U.S. Government and its agencies and instrumentalities, as well as cash and cash equivalents denominated in foreign currencies. Investments in domestic bank certificates of deposit and bankers' acceptances will be limited to banks that have total assets in excess of $500 million and are subject to regulatory supervision by the U.S. Government or state governments. The Fund's investments in foreign short-term instruments will be
855865.3
limited to those that, in the opinion of the Adviser, equate generally to the standards established for U.S. short-term instruments.
III. MANAGEMENT OF THE FUND
The Fund's Board of Directors is responsible for the overall management and supervision of the Fund. The Board employs Jacob Asset Management LLC (the "Adviser") as the investment adviser to the Fund. The Adviser supervises all aspects of the Fund's operations and provides investment advice and portfolio management services to the Fund. Subject to the Board's supervision, the Adviser makes all of the day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages the portfolio investments.
The directors and officers of the Fund and their principal occupations during the past five years are set forth below. Their titles may have varied during this period. Asterisks indicate that those directors are "interested persons" of the Fund, as defined in the 1940 Act. Unless otherwise indicated, the address of each director and officer is 1675 Broadway, New York, New York 10019.
OFFICERS AND DIRECTORS OF THE FUND
RYAN I. JACOB * President, Chief Executive Officer and Director of the Fund as well as founder, Chairman and
Chief Executive Officer of the Adviser. Mr. Jacob served as Chief Portfolio Manager of The
Internet Fund, Inc. from December 20, 1997 through June 24, 1999. Mr. Jacob also served as an
analyst for Horizon Asset Management from 1994 through August 1998 and was an assistant portfolio
manager in the private client group at Bankers Trust from 1992 through 1994. From 1996 through
August 1998, Mr. Jacob was Director of Research for IPO Value Monitor, an investment research
service. Mr. Jacob, a graduate of Drexel University, has over 8 years of investment management
experience.
FRANCIS J. ALEXANDER* Vice President, Secretary, Treasurer and Director of the Fund. Mr. Alexander has been a portfolio
manager with Lepercq, de Neuflize & Co. Inc. since May 1998. Mr. Alexander has also been
President of Alexander Capital Management, Inc. since March 1985.
WILLIAM B. FELL, 29 Director of the Fund. Mr. Fell has served as Manager-Accounting Services with Maritrans Inc.
since September 1996. From March 1995 to September 1996, he was a Senior Accountant with
Maritrans Inc. Mr. Fell was formerly a Senior Accountant with Ernst & Young LLP from September
1994 to March 1995. His address is 1818 Market Street, Suite 3540, Philadelphia, Pennsylvania
19103-3636.
--------
* "Interested person" of the Fund, as defined in the Investment Company Act.
855865.3
-8-
|
CHRISTOPHER V. HAJINIAN, 30 Director of the Fund. Mr. Hajinian is currently a self-employed attorney. He was an attorney
with Naulty, Scaricamazza & McDevitt Ltd. from September 1996 to July 1999. His address is 11
Charles Drive, Richboro, Pennsylvania 18954.
LEONARD S. JACOB, 50, M.D., Ph.D. Director of the Fund. Dr. Jacob has served as Chairman and Chief Executive Officer of InKine
Pharmaceutical Company, Inc. since November 1997. Prior to joining InKine, Dr. Jacob served as
the President and Chief Executive Officer of Sangen Pharmaceutical Company and as a consultant to
various biotechnology companies from June 1996. From 1989 to 1996, Dr. Jacob, as a co-founder of
Magainin Pharmaceutical Inc., served as Chief Operating Officer. His address is 1720 Walton Rd.,
Suite 200, Blue Bell, Pennsylvania 19422.
JEFFREY I. SCHWARZSCHILD, 28 Director of the Fund. Mr. Schwarzschild has been an associate attorney at Goldstein, Gillman,
Melbostad, Gibson & Harris, LLP since February 1999. He is also a professor of Constitutional Law
and Trial Advocacy at Golden Gate University. Mr. Schwarzschild had his own law practice from
December 1997 to February 1999. His address is 100 Van Ness Avenue, 21st Floor, San Francisco,
California 94102.
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855865.3
ESTIMATED COMPENSATION TABLE
(For Fiscal Year Ended August 31)
Pension or
Retirement Estimated
Benefits Annual
Aggregate Accrued Benefit Total
Name of Person and Compensation as Part of Upon Compensation
Position with Fund From Fund Fund Expenses Retirement From the Fund
------------------ --------- ------------- ---------- -------------
William B. Fell $4,000 $0 $0 $4,000
Director
Christopher V. Hajinian $4,000 $0 $0 $4,000
Director
Dr. Leonard Jacob $4,000 $0 $0 $4,000
Director
Jeffrey I. Schwarzchild $4,000 $0 $0 $4,000
Director
|
Each Director who is not an interested person of the Fund receives $1,000 for each meeting attended and is reimbursed for all out-of-pocket expenses incurred in connection with attendance at such meetings.
IV. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
On September 20, 1999, Ryan Jacob purchased $100,000 of the Fund's common stock at an initial subscription price of $10.00 per share. Mr. Jacob may be deemed to be a "control person" of the Fund as defined in the Act due to his majority ownership interest in the Adviser.
V. INVESTMENT ADVISORY AND OTHER SERVICES
A. INVESTMENT ADVISER
1. General Information. Jacob Asset Management LLC (the "Adviser"), a registered investment adviser, is a Delaware limited liability company with its principal office located at 1675 Broadway, New York, New York 10019. The Adviser has been employed by the Board of Directors to serve as the investment adviser of the Fund pursuant to an Investment Advisory Agreement entered into by the Fund. The Adviser supervises all aspects of the Fund's operations and provides investment advice and portfolio management services to the Fund. Pursuant to the Advisory Agreement and subject to the supervision of the Fund's Board of Directors, the Adviser makes the Fund's day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages the Fund's investments.
Ryan I. Jacob, founder, Chairman and Chief Executive Officer of the Adviser and President, Chief Executive Officer and Director of the Fund, is a controlling person of the Adviser based on his majority ownership interest and is both a control and affiliated person of the Fund. Francis J. Alexander is an affiliated person of both the Adviser and the Fund. Mr. Alexander has a minority ownership interest in the Adviser and is Vice President, Secretary, Treasurer and Director of the Fund. Lepercq, de Neuflize & Co. Incorporated is an affiliate of the Adviser based on its minority ownership interest. It acts as investment adviser to a mutual fund and also manages portfolios for individuals and institutional clients.
855865.3
Lepercq, de Neuflize Securities Inc., the Fund's distributor, is a wholly-owned subsidiary of Lepercq, de Neuflize & Co. Incorporated.
The Adviser provides persons satisfactory to the Board of Directors of the Fund to serve as officers of the Fund. Such officers, as well as certain other employees and directors of the Fund, may be directors, officers or employees of the Adviser or its affiliates.
The Adviser may also provide the Fund with supervisory personnel who will be responsible for supervising the performance of administrative services, accounting and related services, net asset value and yield calculation, reports to and filings with regulatory authorities, and services relating to such functions. However, the Administrator will provide personnel who will be responsible for performing the operational components of such services. The personnel rendering such supervisory services may be employees of the Adviser, of its affiliates or of other organizations.
The Advisory Agreement was initially approved on August 27, 1999 by the Board of Directors, including a majority of the directors who are not interested persons (as defined in the 1940 Act) of the Fund or the Adviser and by the initial shareholder. The Agreement, which currently extends to August 31, 2001, may be continued in force thereafter for successive twelve-month periods beginning each September 1, provided that such continuance is specifically approved annually by majority vote of the Fund's outstanding voting securities or by the Board of Directors, and in either case by a majority of the directors who are not parties to the Advisory Agreement or interested persons of any such party, by votes cast in person at a meeting called for the purpose of voting on such matter.
The Advisory Agreement is terminable without penalty by the Fund on sixty days' written notice when authorized either by majority vote of the outstanding voting shares of the Fund or by a vote of a majority of the Fund's Board of Directors, or by the Adviser on sixty days' written notice, and will automatically terminate in the event of its assignment. The Advisory Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Adviser, or of reckless disregard of its obligations thereunder, the Adviser shall not be liable for any action or failure to act in accordance with its duties thereunder.
2. Adviser's Fees. Pursuant to the terms of the Advisory Agreement, the Fund, on behalf of each Class, will pay an annual advisory fee paid monthly equal to 1.25% of the Fund's average daily net assets.
This fee is higher than the fee paid by most other mutual funds; however, the Board of Directors believes that this fee is reasonable in light of the advisory services performed by the Adviser for the Fund. Any portion of the advisory fees received by the Adviser may be used by the Adviser to provide investor and administrative services and for distribution of Fund shares.
The Adviser may voluntarily waive a portion of its fee or assume certain expenses of the Fund. This would have the effect of lowering the overall expense ratio of the Fund and of increasing yield to investors.
Voluntary Expense Subsidization. From time to time, the Adviser may voluntarily assume certain expenses of the Fund. This would have the effect of lowering the overall expense ratio and of increasing yield to investors. Subject to any such voluntary assumption of certain expenses by the Adviser, the Fund has, under the Advisory Agreement, confirmed its obligation for payment of all other expenses, including without limitation: (i) fees payable to the Adviser, Administrator, Custodian, Transfer Agent and Dividend Agent; (ii) brokerage and commission expenses; (iii) Federal, state or local taxes, including issuance and transfer taxes incurred by or levied on it; (iv) commitment fees, certain insurance premiums and membership fees and dues in investment company organizations; (v) interest charges on borrowings; (vi) telecommunications expenses; (vii) recurring and non-recurring legal and accounting expenses; (viii) costs of organizing and maintaining the Fund's existence as a corporation; (ix) compensation, including directors' fees, of any directors, officers or employees who are not also officers of the Adviser or its affiliates and costs of other personnel providing administrative and clerical services; (x) costs of stockholders' services and costs of stockholders' reports, proxy solicitations, and corporate meetings; (xi) fees and expenses of registering its shares under the appropriate Federal securities laws and of qualifying its
855865.3
shares under applicable state securities laws, including expenses attendant upon the initial registration and qualification of these shares and attendant upon renewals of, or amendments to, those registrations and qualifications; and (xii) expenses of preparing, printing and delivering the Prospectus to existing shareholders and of printing shareholder application forms for shareholder accounts.
The Fund may from time-to-time hire its own employees or contract to have management services performed by third parties, and the management of the Fund intends to do so whenever it appears advantageous to the Fund. The Fund's expenses for employees and for such services are among the expenses subject to the expense limitation described above.
B. THE DISTRIBUTION AND SERVICE PLAN
The Fund has adopted a distribution and service plan, pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "Plan"). Rule 12b-1 provides that an investment company which bears any direct or indirect expense of distributing its shares must do so only in accordance with a plan permitted by the Rule.
The Plan provides that the Fund will compensate the Adviser for certain expenses and costs incurred in connection with providing shareholder servicing and maintaining shareholder accounts and to compensate parties with which it has written agreements and whose clients own shares of the Fund for providing servicing to their clients ("Shareholder Servicing"). These fees are subject to a maximum of 0.25% per annum of the Fund's average daily net assets. The Plan also provides that Lepercq, de Neuflize Securities Inc. (the "Distributor") is paid a fee equal to 0.10% of the Fund's average daily net assets (the "Distribution Fee") on an annual basis to permit it to make payments to broker-dealers and other financial institutions with which it has written agreements and whose clients are Fund shareholders (each a "broker-dealer") for providing distribution assistance and promotional support to the Fund. Fees paid under the Plan may not be waived for individual shareholders.
Under the Plan, each shareholder servicing agent and
broker-dealer will, as agent for its customers, among other things: (i) answer
customer inquiries regarding account status and history, the manner in which
purchases and redemptions of shares of each Class of the Fund may be effected
and certain other matters pertaining to the Fund; (ii) assist shareholders in
designating and changing dividend options, account designations and addresses;
(iii) provide necessary personnel and facilities to establish and maintain
shareholder accounts and records; assist in processing purchase and redemption
transactions; (iv) arrange for the wiring of funds; (v) transmit and receive
funds in connection with customer orders to purchase or redeem shares; (vi)
verify and guarantee shareholder signatures in connection with redemption orders
and transfers and changes in shareholder designated accounts; (vii) furnish
quarterly and year-end statements and confirmations within five business days
after activity in the account; (viii) transmit to shareholders of each Class
proxy statements, annual reports, updated prospectuses and other communications;
(ix) receive, tabulate and transmit proxies executed by shareholders with
respect to meetings of shareholders of the Fund; and (x) provide such other
related services as the Fund or a shareholder may request.
The Plan, the shareholder servicing agreements and the
distribution agreement each provide that the Adviser and the Distributor may
make payments from time to time from their own resources which may include the
advisory fee, the Distribution Fee and past profits for the following purposes:
(i) to defray the costs of and to compensate others, including financial
intermediaries with whom the Distributor or the Adviser has entered into written
agreements, for performing shareholder servicing and related administrative
functions of the Fund; to compensate certain financial intermediaries for
providing assistance in distributing Fund shares; (ii) to pay the costs of
printing and distributing the Fund's Prospectus to prospective investors; and
(iii) 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. Further, the
Agreements provide that the Adviser may use its service fee for the purposes
enumerated in (i) above and any asset based sales charges paid to the
Distributor also may be used for purposes of (ii) or (iii) above. The
Distributor or the Adviser, as the case may be, in their sole discretion, will
determine the amount of such payments made pursuant to the Plan with the
855865.3
shareholder servicing agents and broker-dealers with whom they have contracted, provided that such payments made pursuant to the Plan will not increase the amount which the Fund is required to pay the Distributor or the Adviser for any fiscal year under the shareholder servicing agreements or otherwise.
Shareholder servicing agents and broker-dealers may charge investors a fee in connection with their use of specialized purchase and redemption procedures offered to investors by the shareholder servicing agents and broker-dealers. In addition, shareholder servicing agents and broker-dealers offering purchase and redemption procedures similar to those offered to shareholders who invest in the fund directly may impose charges, limitations, minimums and restrictions in addition to or different from those applicable to shareholders who invest in the Fund directly. Accordingly, the net yield to investors who invest through shareholder servicing agents and broker-dealers may be less than realized by investing in the Fund directly. An investor should read the Prospectus in conjunction with the materials provided by the shareholder servicing agent and broker-dealer describing the procedures under which Fund shares may be purchased and redeemed through the shareholder servicing agent and broker-dealer.
In accordance with the Rule, the Plan provides that all written agreements relating to the Plan entered into by the Fund, the Distributor or the Adviser, and the shareholder servicing agents, broker-dealers, or other organizations, must be in a form satisfactory to the Fund's Board of Directors. In addition, the Plan requires the Fund and the Distributor to prepare, 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 those expenditures were made.
C. ADMINISTRATOR
1. General Information. The Administrator for the Fund is Firstar Mutual Fund Services, LLC (the "Administrator"), which has its principal office at 615 East Michigan Street, Milwaukee, Wisconsin 53202 and is primarily in the business of providing administrative, fund accounting and stock transfer services to retail and institutional mutual funds.
Pursuant to a Fund Administration Servicing Agreement with the Fund, the Administrator provides all administrative services necessary for the Fund, other than those provided by the Adviser, subject to the supervision of the Fund's Board of Directors. The Administrator will provide persons to serve as officers of the Fund. Such officers may be directors, officers or employees of the Administrator or its affiliates.
The Fund Administration Servicing Agreement is terminable by the Board of Directors of the Fund or the Administrator on sixty days' written notice and may be assigned provided the non-assigning party provides prior written consent. The Agreement shall remain in effect for two years from the date of its initial approval, and subject to annual approval of the Fund's Board of Directors for one-year periods thereafter. The Agreement provides that in the absence of willful misfeasance, bad faith or gross negligence on the part of the Administrator or reckless disregard of its obligations thereunder, the Administrator shall not be liable for any action or failure to act in accordance with its duties thereunder.
Under the Fund Administration Servicing Agreement, the
Administrator provides all administrative services, including, without
limitation: (i) providing services of persons competent to perform such
administrative and clerical functions as are necessary to provide effective
administration of the Fund; (ii) overseeing the performance of administrative
and professional services to the Fund by others, including the Fund's Custodian;
(iii) preparing, but not paying for, the periodic updating of the Fund's
Registration Statement, Prospectus and Statement of Additional Information in
conjunction with Fund counsel, including the printing of such documents for the
purpose of filings with the Securities and Exchange Commission and state
securities administrators, preparing the Fund's tax returns, and preparing
reports to the Fund's shareholders and the Securities and Exchange Commission;
(iv) preparing in conjunction with Fund counsel, but not paying for, all filings
under the securities or "Blue Sky" laws of such states or countries as are
designated by the Distributor, which may be required to register or qualify, or
continue the registration or qualification, of the Fund and/or its shares under
such laws; (v) preparing notices and agendas for meetings of the Fund's Board of
Directors and minutes of such meetings in all matters required by the 1940 Act
to be acted upon by the Board; and (vi) monitoring daily and periodic compliance
with respect to all requirements and restrictions of the Investment Company Act,
the Internal Revenue Code and the Prospectus.
855865.3
The Administrator, pursuant to the Fund Administration Servicing Agreement, provides the Fund with all accounting services, including, without limitation: (i) daily computation of net asset value; (ii) maintenance of security ledgers and books and records as required by the Investment Company Act; (iii) production of the Fund's listing of portfolio securities and general ledger reports; (iv) reconciliation of accounting records; (v) calculation of yield and total return for the Fund; (vi) maintaining certain books and records described in Rule 31a-1 under the 1940 Act, and reconciling account information and balances among the Fund's Custodian and Adviser; and (vii) monitoring and evaluating daily income and expense accruals, and sales and redemptions of shares of the Fund.
2. Administrator's Fees. For the administrative services rendered to the Fund by the Administrator, the Fund pays the Administrator a minimum annual fee of $35,000. The Administrator charges the Fund an annual fee of .07 of the average daily net assets on the first $200 million, .05% on the next $500 million, and .04% on the balance.
For the fund accounting services rendered to the Fund by the Administrator, the Fund pays the Administrator at an annual rate of $23,000 for the first $40 million, .01% of the average daily net assets of the Fund on the next $200 million, and .005% on the balance. The Administrator is also entitled to certain out-of-pocket expenses, including pricing expenses.
D. CUSTODIAN, TRANSFER AGENT AND DIVIDEND AGENT
Firstar Bank Milwaukee, N.A., 615 East Michigan Street, Milwaukee, Wisconsin 53202, serves as custodian for the Fund's cash and securities. Pursuant to a Custodian Servicing Agreement with the Fund, it is responsible for maintaining the books and records of the Fund's portfolio securities and cash. The Custodian receives an annual fee equal to .02% of the Fund's average daily net assets. The Custodian does not assist in, and is not responsible for, investment decisions involving assets of the Fund. Firstar Mutual Fund Services LLC, the Fund's Administrator, also acts as the Fund's transfer and dividend agent. Firstar Mutual Fund Services LLC has its principal office at 615 East Michigan Street, Milwaukee, Wisconsin 53202.
E. COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of the Fund are passed upon by Battle Fowler LLP, 75 East 50th Street, New York, NY 10022. PricewaterhouseCoopers LLP, 100 E. Wisconsin Ave., Suite 1500, Milwaukee, Wisconsin 53202 have been selected as auditors for the Fund.
VI. BROKERAGE ALLOCATION AND OTHER PRACTICES
The Adviser makes the Fund's portfolio decisions. In the over-the-counter market, where a majority of the portfolio securities are expected to be traded, orders are placed with responsible primary market-makers unless a more favorable execution or price is believed to be obtainable. Regarding exchange-traded securities, the Adviser determines the broker to be used in each specific transaction with the objective of negotiating a combination of the most favorable commission and the best price obtainable on each transaction (generally defined as best execution). The Adviser will also consider the reliability, integrity and financial condition of the broker-dealer, the size of and difficulty in executing the order, the value of the expected contribution of the broker-dealer to the investment performance of the Fund on a continuing basis, as well as other factors such as the broker-dealer's ability to engage in transactions in securities of issuers which are thinly traded. The Adviser does not intend to employ a broker-dealer whose commission rates fall outside of the prevailing ranges of execution costs charged by other broker-dealers offering similar services. When consistent with the objective of obtaining best execution, brokerage may be directed to persons or firms supplying investment information to the Adviser, or portfolio transactions may be effected by the Adviser or through the Distributor. Neither the Fund nor the Adviser has entered into agreements or understandings with any brokers regarding the placement of securities transactions because of research services they provide. To the extent that such persons or firms supply investment information to the Adviser for use in rendering investment advice to the Fund, such information may be supplied at no cost to the Adviser and, therefore, may
855865.3
have the effect of reducing the expenses of the Adviser in rendering advice to the Fund. While it is impossible to place an actual dollar value on such investment information, its receipt by the Adviser probably does not reduce the overall expenses of the Adviser to any material extent. Consistent with the Conduct Rules of the NASD, and subject to seeking best execution, the Adviser may consider sales of shares of the Fund as a factor in the selection of brokers to execute portfolio transactions for the Fund.
The investment information provided to the Adviser is of the type described in Section 28(e) of the Securities Exchange Act of 1934 and is designed to augment the Adviser's own internal research and investment strategy capabilities. Research services furnished by brokers through which the Fund effects securities transactions are used by the Adviser in carrying out its investment management responsibilities with respect to all of its clients' accounts. There may be occasions where the transaction cost charged by a broker may be greater than that which another broker may charge if the Adviser determines in good faith that the amount of such transaction cost is reasonable in relation to the value of brokerage and research services provided by the executing broker. The Adviser may consider the sale of shares of the Fund by brokers including the Distributor as a factor in its selection of brokers of Fund transactions.
A majority of the portfolio securities that the Fund purchases or sells will be done as principal transactions. In addition, debt instruments are normally purchased directly from the issuer, from banks and financial institutions or from an underwriter or market maker for the securities. There usually are not brokerage commissions paid for any such purchases. Any transactions involving such securities for which the Fund pays a brokerage commission will be effected at the best price and execution available. Purchases from underwriters of portfolio securities include a commission or concession paid by the issuer to the underwriter, and purchases from dealers serving as market makers include the spread between the bid and asked price. The Fund may purchase Government Obligations with a demand feature from banks or other financial institutions at a negotiated yield to the Fund based on the applicable interest rate adjustment index for the security. The interest received by the Fund is net of a fee charged by the issuing institution for servicing the underlying obligation and issuing the participation certificate, letter of credit, guarantee or insurance and providing the demand repurchase feature.
Allocation of transactions, including their frequency, to various dealers is determined by the Adviser in its best judgment and in a manner deemed in the best interest of shareholders of the Fund rather than by a formula. The primary consideration is prompt execution of orders in an effective manner at the most favorable price.
Investment decisions for the Fund will be made independently from those for any other investment companies or accounts that may become managed by the Adviser or its affiliates. If, however, the Fund and other investment companies or accounts managed by the Adviser are simultaneously engaged in the purchase or sale of the same security, the transactions will be averaged as to price and allocated equitably to each account. In some cases, this policy might adversely affect the price paid or received by the Fund or the size of the position obtainable for the Fund. In addition, when purchases or sales of the same security for the Fund and for other investment companies managed by the Adviser occur contemporaneously, the purchase or sale orders may be aggregated in order to obtain any price advantage available to large denomination purchasers or sellers.
In addition to managing the assets of the Fund, the Adviser manages assets on a discretionary basis for other clients and, as a result, the Adviser may effect transactions in such clients' accounts in securities in which the Fund currently holds or, in the near future may hold, a position. The Adviser makes the determination to purchase or sell a security based on numerous factors, including those that may be particular to one or more of its clients. Therefore, it is possible that the Adviser will effect transactions in certain securities for select clients, which may or may not include the Fund, that it may not deem, in its sole discretion, as being appropriate for other clients, which may or may not include the Fund.
855865.3
VII. CAPITAL STOCK AND OTHER SECURITIES
The authorized capital stock of the Fund consists of twenty billion shares of stock having a par value of one-tenth of one cent ($.001) per share. The Fund's Board of Directors is authorized to divide the unissued shares into separate classes and series of stock, each series representing a separate, additional investment portfolio. Currently there is only one class of shares outstanding. Shares of any class or series will have identical voting rights, except where, by law, certain matters must be approved by a majority of the shares of the affected class or series. Each share of any class or series of shares when issued has equal dividend, distribution, liquidation and voting rights within the class or series for which it was issued, and each fractional share has those rights in proportion to the percentage that the fractional share represents of a whole share. Shares will be voted in the aggregate.
There are no conversion or preemptive rights in connection with any shares of the Fund. All shares, when issued in accordance with the terms of the offering, will be fully paid and non-assessable. Shares are redeemable at net asset value, at the option of the investor.
The shares of the Fund have non-cumulative voting rights, which means that the holders of more than 50% of the shares outstanding voting for the election of directors can elect 100% of the directors if the holders choose to do so, and, in that event, the holders of the remaining shares will not be able to elect any person or persons to the Board of Directors. Unless specifically requested by an investor who is an investor of record, the Fund does not issue certificates evidencing Fund shares.
As a general matter, the Fund will not hold annual or other meetings of the Fund's shareholders. This is because the By-laws of the Fund provide for annual meetings only (a) for the election of directors, (b) for approval of revisions to the Fund's investment advisory agreement, (c) for approval of revisions to the Fund's distribution agreement with respect to a particular class or series of stock, and (d) upon the written request of holders of shares entitled to cast not less than twenty-five percent of all the votes entitled to be cast at such meeting. Annual and other meetings may be required with respect to such additional matters relating to the Fund as may be required by the 1940 Act including the removal of Fund directors and communication among shareholders, any registration of the Fund with the Securities and Exchange Commission or any state, or as the Directors may consider necessary or desirable. Each Director serves until the next meeting of shareholders called for the purpose of considering the election or reelection of such Director or of a successor to such Director, and until the election and qualification of his or her successor, elected at such meeting, or until such Director sooner dies, resigns, retires or is removed by the vote of the shareholders.
VIII. PURCHASE, REDEMPTION AND PRICING OF SHARES
The material relating to the purchase, redemption and pricing of shares is located in the Shareholder Information section of the Prospectus and is incorporated by reference herein.
IX. TAXATION OF THE FUND
Prospective investors should consult their tax advisors with respect to the tax consequences of an investment in the Fund.
The Fund intends to elect, effective for its tax year ending August 31, 2000, to be treated as a regulated investment company under the Internal Revenue Code of 1986. To qualify as a regulated investment company, the Fund must distribute to shareholders at least 90% of its investment company taxable income (which includes, among other items, dividends, taxable interest and the excess of net short-term capital gains over net long-term capital losses), and meet certain diversification of assets, source of income, and other requirements discussed below. If the Fund meets these requirements, it generally will not be subject to Federal income tax on investment company taxable income distributed to its shareholders,
855865.3
and on net long-term capital gains designated by the Fund as capital gain dividends distributed to shareholders. In determining the amount of net capital gains to be distributed, any capital loss carryover from prior years will be applied against capital gains to reduce the amount of distributions paid. If the Fund does not meet all of these requirements, it will be taxed as an ordinary corporation and distributions will generally be taxed to shareholders as ordinary income to the extent of the Fund's current or accumulated earnings and profits. Such distributions generally would be eligible for the dividends received deduction in the case of corporate shareholders. The Fund's policy is to declare dividends annually and distribute as dividends each year 100% (and in no event less than 90%) of its investment company taxable income.
Amounts not distributed on a timely basis, other than tax-exempt interest, may be subject to a nondeductible 4% excise tax. To avoid the excise tax, the Fund must distribute for the calendar year an amount equal to the sum of (1) at least 98% of its ordinary income (excluding any capital gains or losses) for the calendar year, (2) at least 98% of the excess of its capital gains over capital losses (adjusted for certain losses) for the one-year period ending October 31 of such year, and (3) all ordinary income and capital gain net income (adjusted for certain ordinary losses) for previous years that were not distributed during such years.
Distributions of investment company taxable income, including net short term capital gains, generally are taxable to shareholders as ordinary income. Distributions of net capital gains, if any, designated by the Fund as capital gain dividends are taxable to shareholders as long-term capital gains, regardless of the length of time the Fund's shares have been held by the shareholder. Shareholders will be notified annually as to the Federal tax status of distributions.
Distributions are taxable to shareholders whether received in cash or reinvested in additional shares of the Fund. Shareholders receiving a distribution in the form of additional shares will be treated as receiving a distribution equal to the amount of the cash dividend that otherwise would have been distributable (where the additional shares are purchased in the open market), or the fair market value of the shares received, determined as of the reinvestment date. Shareholders electing to receive distributions in the form of additional shares will have a cost basis for federal income tax purposes in each share so received equal to the value of a share on the reinvestment date. The Fund does not expect that any of its distributions will qualify for the dividends-received deduction for corporations.
In addition to satisfying the distribution requirement described above, a regulated investment company must derive at least 90% of its gross income from dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock or securities or foreign currencies (to the extent such currency gains are directly related to the regulated investment company's principal business of investing in stock or securities) and other income (including but not limited to gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies.
The Fund must also satisfy an asset diversification test in order to qualify as a regulated investment company. Under this test, at the close of each quarter of the Fund's taxable year, at least 50% of the value of the Fund's assets must consist of cash and cash items, U.S. Government securities, securities of other regulated investment companies, and securities of other issuers (as to which the Fund has not invested more than 5% of the value of the Fund's total assets in securities of such issuer and as to which the Fund does not hold more than 10% of the outstanding voting securities of such issuer), and no more than 25% of the value of its total assets may be invested in the securities of any one issuer (other than U.S. Government securities and securities of other regulated investment companies), or in two or more issuers which the Fund controls and which are engaged in the same or similar trades or businesses. Generally, an option (call or put) with respect to a security is treated as issued by the issuer of the security, not the issuer of the option.
Investors should carefully consider the tax implications of buying shares prior to a distribution by the Fund. The price of shares purchased at such a time includes the amount of the forthcoming distributions, but the distribution would be taxable to the shareholder as ordinary income or capital gain as described above, even though, from an investment standpoint, it may constitute a partial return of capital.
855865.3
Dividends and interest paid by foreign issuers may be subject to withholding and other foreign taxes, which may decrease the net return on foreign investments as compared to dividends and interest paid by domestic issuers. The Fund does not expect that it will qualify to elect to pass through to its shareholders the right to take a foreign tax credit for foreign taxes withheld from dividends and interest payments. Gains or losses attributable to fluctuations in exchange rates resulting from transactions in which the Fund accrues interest or other receivables or accrues expenses or other liabilities denominated in a foreign currency generally are treated as ordinary income or ordinary loss. These gains or losses may increase, decrease, or eliminate the amount of the Fund's investment company taxable income to be distributed to its shareholders as ordinary income.
Upon the taxable disposition (including a sale or redemption) of shares of the Fund, a shareholder may realize a gain or loss. Such gain or loss will be treated as capital gain or loss if the shares are capital assets in the shareholder's hands, and will be long-term if the shareholder's holding period for the shares is more than one year. Non-corporate shareholders are subject to tax at a maximum rate of 20% on long-term capital gains resulting from the disposition of shares held for more than 12 months (10% if the taxpayer is, and would be after accounting for such gains, subject to the 15% tax bracket for ordinary income). However, a loss realized by a shareholder on the disposition of Fund shares with respect to which capital gains dividends have been paid will, to the extent of such capital gain dividends, also be treated as long-term capital loss if such shares have been held by the shareholder for six months or less. Further, a loss realized on a disposition will be disallowed to the extent the shares disposed of are replaced (whether by reinvestment of distributions or otherwise) within a period of 61 days beginning 30 days before and ending 30 days after the shares are disposed of. In such a case, the basis of the shares acquired will be adjusted to reflect the disallowed loss. Capital losses in any year are deductible only to the extent of capital gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income ($1,500 for married individuals filing separately).
If any net capital gains are retained by the Fund for reinvestment, requiring federal income taxes thereon to be paid by it, the Fund will elect to treat such capital gains as having been distributed to shareholders. As a result, shareholders will report such capital gains as net capital gains, will be able to claim their share of federal income taxes paid by the Fund on such gains as a credit against their own federal income tax liability, and will be entitled to increase the adjusted tax basis of their Fund shares by 65% of their share of the undistributed gain.
The Fund will be required to report to the Internal Revenue Service all distributions of taxable income and capital gains as well as gross proceeds from the redemption or exchange of Fund shares, except in the case of exempt shareholders, which include most corporations. Under the backup withholding provisions, distributions of taxable income and capital gains and proceeds from the redemption or exchange of the shares of a regulated investment company may be subject to withholding of federal income tax at the rate of 31% in the case of non-exempt shareholders who fail to furnish the investment company with their taxpayer identification numbers and their required certifications regarding their status under the federal income tax law. If the withholding provisions are applicable, any such distributions and proceeds, whether taken in cash or reinvested in additional shares, will be reduced by the amounts required to be withheld. Corporate shareholders should provide the Fund with their taxpayer identification numbers and should certify their status in order to avoid possible erroneous application of backup withholding.
The foregoing discussion of U.S. federal income tax law relates solely to the application of that law to U.S. persons, i.e., U.S. citizens and residents and U.S. domestic corporations, partnerships, trusts and estates. Each shareholder who is not a U.S. person should consider the U.S. and foreign tax consequences of ownership of Fund shares, including the possibility that such a shareholder may be subject to a U.S. withholding tax at a rate of 30% (or at a lower rate under an applicable income tax treaty) on amounts received by such person.
The Fund may be subject to state or local tax in jurisdictions in which the Fund is organized or may be deemed to be doing business. However, Maryland taxes regulated investment companies in a manner that is generally similar to the federal income tax rules described herein.
855865.3
Distributions may be subject to state and local income taxes. In addition, the treatment of the Fund and its shareholders in those states that have income tax laws might differ from their treatment under the federal income tax laws.
X. UNDERWRITERS
The Fund sells and redeems its shares on a continuing basis at their net asset value. In effecting sales of Fund shares under the Distribution Agreement, the Distributor, as agent for the Fund, will solicit orders for the purchase of the Fund's shares, provided that any subscriptions and orders will not be binding on the Fund until accepted by the Fund as a principal. For its services under the Distribution Agreement, the Distributor will be entitled to receive the Distribution Fee.
The Glass-Steagall Act limits the ability of a depository institution to become an underwriter or distributor of securities. It is the Fund's position, however, that banks are not prohibited from acting in other capacities for investment companies, such as providing administrative and shareholder account maintenance services and receiving compensation from the distributor for providing such services. This is an unsettled area of the law, however, and if a determination contrary to the Fund's position concerning shareholder servicing and administration payments to banks from the distributor is made by a bank regulatory agency or court, any such payments will be terminated and any shares registered in the banks' names, for their underlying customers, will be re-registered in the names of the customers at no cost to its shareholders. In addition, state securities laws on this issue may differ from the interpretation of Federal law expressed herein and banks and financial institutions may be required to register as dealers pursuant to state law.
XI. CALCULATION OF PERFORMANCE DATA
The Fund may from time to time include yield, effective yield and total return information in advertisements or reports to investors or prospective investors. Currently, the Fund intends to provide these reports to investors and prospective investors semi-annually, but may from time to time, in its sole discretion, provide reports on a more frequent basis, such as quarterly. The "yield" refers to income generated by an investment in the Fund over a thirty-day period. This income is then "annualized." That is, the amount of income generated by the investment during that month is assumed to be generated each month over a 12-month period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the monthly income earned by an investment in the Fund is assumed to be reinvested. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. The "total return" of the Fund is required to be included in any advertisement containing the Fund's yield. Total return is the average annual total return for the period which began at the inception of the Fund and ended on the date of the most recent balance sheet, and is computed by finding the average annual compound rates of return over the period that would equate the initial amount invested to the ending redeemable value. Yield, effective yield and total return may fluctuate daily and do not provide a basis for determining future yields, effective yields or total returns. One-, five- and ten-year periods will be shown, unless the Fund has been in existence for a shorter period.
The yield and the net asset value of the Fund will vary based on the current market value of the securities held by the Fund and changes in the Fund's expenses. The Adviser, the Administrator or the Distributor may voluntarily waive a portion of their fees on a month-to-month basis. These actions would have the effect of increasing the net income (and therefore the yield and total rate of return) of the Fund during the period such waivers are in effect. These factors and possible differences in the methods used to calculate the yields and total rates of return should be considered when comparing the yields or total rates of return of the Fund to yields and total rates of return published for other investment companies and other investment vehicles.
855865.3
The Fund computes yield based on a 30-day (or one month) period ended on the date of the most recent balance sheet included in the registration statement, computed by dividing the net investment income per share earned during the period by the maximum offering price per share on the last day of the period, according to the following formula:
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursements).
c = the average daily number of shares outstanding during the
period that were entitled to dividends.
d = the maximum offering price per share on the last day of the
period.
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Actual future yields will depend on the type, quality, and maturities of the investments held by the Fund, changes in interest rates on investments, and the Fund's expenses during the period.
COMPUTATION OF TOTAL RETURN. Total return is the average annual total return for the 1-, 5- and 10-year period ended on the date of the most recent balance sheet included in the Statement of Additional Information, computed by finding the average annual compounded rates of return over 1-, 5- and 10-year periods that would equate the initial amount invested to the ending redeemable value according to the following formula:
P(1 + T)n = ERV
Where:
P = a hypothetical initial investment of $1000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1000 payment
made at the beginning of the 1-, 5- or 10-year periods at
the end of the 1-, 5-or 10-year periods (or fractions
thereof).
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Because the Fund has not had a registration in effect for 5 or 10 years, the period during which the registration has been effective shall be substituted.
From time to time evaluations of performance of the Fund made by independent sources may be used in advertisements. These sources may include Lipper Analytical Services, Wiesenberger Investment Company Service, Donoghue's Money Fund Report, Barron's, Business Week, Changing Times, Financial World, Forbes, Fortune, Money, Personal Investor, Bank Rate Monitor, and The Wall Street Journal. From time to time evaluations of performance of the Adviser made by independent sources may be used in advertisements of the Fund.
The performance of the Fund may be compared in various financial and news publications to the performance of various indices and investments for which reliable performance data is available. The performance of the Fund may be compared in publications to averages, performance rankings, or other information prepared by nationally recognized mutual fund ranking and statistical services. As with other performance data, performance comparisons should not be considered representative of the Fund's relative performance for any future period.
855865.3
XII. FINANCIAL STATEMENTS
The annual financial statements will be audited by the Fund's independent financial accountants. Copies will be available, without charge, upon request.
855865.3
PART C - OTHER INFORMATION
Item 23. Exhibits
(a) Articles of Incorporation of the Registrant (filed with Registration Statement No. 333-82865 on July 14, 1999 and incorporated by reference herein).
(b) By-Laws of the Registrant (filed with Registration Statement No. 333-82865 on July 14, 1999 and incorporated by reference herein).
(c) Not applicable.
* (d) Form of Investment Advisory Agreement between the Registrant and Jacob Asset Management LLC.
(e) See Distribution Agreement filed as Exhibit m.1.
(f) Not applicable.
* (g) Form of Custodian Servicing Agreement between the Registrant and Firstar Bank Milwaukee, N.A.
(h) Not Applicable.
** (i) Consent Opinion of Messrs. Battle Fowler LLP as to the legality of the securities being issued and as to the use of their name under the headings "Federal Income Taxes" in the Prospectus and "Counsel and Auditors" in the Statement of Additional Information.
** (j) Consent of Independent Auditors.
** (k) Initial balance sheet as of September 20, 1999.
** (l) Written assurance of Ryan I. Jacob that his purchase of shares of the Registrant was for investment purposes without any present intention of redeeming or reselling.
* (m) Form of Distribution and Service Plan pursuant to Rule 12b-1 under the Investment Company Act of 1940.
* (m.1) Form of Distribution Agreement between the Registrant and Lepercq, de Neuflize Securities Inc.
* (m.2) Form of Shareholder Servicing Agreement between the Registrant and Jacob Asset Management LLC.
** (m.3) Form of Fund Administration Servicing Agreement between the Registrant and Firstar Mutual Fund Services, LLC.
(n) Not applicable.
(o) Not applicable.
* (p) Powers of Attorney
Item 24. Persons controlled by or Under Common Control with Registrant.
None.
* Filed with Pre-Effective Amendment No. 1 to Registration Statement No. 333-82865 on September 24, 1999 and incorporated by reference herein.
** Filed herewith.
842537.3
Item 25. Indemnification.
In accordance with Section 2-418 of the General Corporation Law of the State of Maryland, Article NINTH of the Registrant's Articles of Incorporation provides as follows:
"NINTH: (1) The Corporation shall indemnify (i) its currently acting and former directors and officers, whether serving the Corporation or at its request any other entity, to the fullest extent required or permitted by the General Laws of the State of Maryland now or hereafter in force, including the advance of expenses under the procedures and to the fullest extent permitted by law, and (ii) other employees and agents to such extent as shall be authorized by the Board of Directors or the By-Laws and as permitted by law. Nothing contained herein shall be construed to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. The foregoing rights of indemnification shall not be exclusive of any other rights to which those seeking indemnification may be entitled. The Board of Directors may take such action as is necessary to carry out these indemnification provisions and is expressly empowered to adopt, approve and amend from time to time such by-laws, resolutions or contracts implementing such provisions or such indemnification arrangements as may be permitted by law. No amendment of the charter of the Corporation or repeal of any of its provisions shall limit or eliminate the right of indemnification provided hereunder with respect to acts or omissions occurring prior to such amendment or repeal.
(2) To the fullest extent permitted by Maryland statutory or decisional law, as amended or interpreted, and the Investment Company Act of 1940, no director or officer of the Corporation shall be personally liable to the Corporation or its stockholders for money damages; provided, however, that nothing herein shall be construed to protect any director or officer of the Corporation against any liability to the Corporation or its security holders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of his office. No amendment of the charter of the Corporation or repeal of any of its provisions shall limit or eliminate the limitation of liability provided to directors and officers hereunder with respect to any act or omission occurring prior to such amendment or repeal."
In Section 7 of the Distribution Agreement relating to the securities being offered hereby, the Registrant agrees to indemnify the Distributor and any person who controls the Distributor within the meaning of Section 15 of the Securities Act of 1933, against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus. In addition, in Section 8 of the Distribution Agreement, the Distributor agrees to indemnify the Registrant, its officers and directors, and any person who controls the Registrant within the meaning of Section 15 of the Securities Act of 1933, against certain types of civil liabilities arising in connection with the Registration Statement or Prospectus.
Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is
842537.3
asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
Item 26. Business and Other Connections of the Investment Adviser.
The description of Jacob Asset Management LLC ("Adviser") under the caption "Management, Organization and Capital Structure" in the Prospectus and "Management of the Fund" and "Investment Advisory and Other Services" in the Statement of Additional Information of the Registration Statement is incorporated herein by reference.
Item 27. Principal Underwriters.
(a) Lepercq, de Neuflize Securities Inc., the Registrant's Distributor, is also the distributor for Lepercq-Istel Trust.
(b) The following are the directors and officers of Lepercq, de Neuflize Securities Inc.
Positions and Offices Positions and Offices
Name With the Distributor With the Registrant
---- -------------------- ---------------------
Bruno Desforges Managing Director None
1675 Broadway
New York, NY 10019
Peter Hartnedy Vice President and None
1675 Broadway Director
New York, NY 10019
Francois Letaconnoux President and Director None
1675 Broadway
New York, NY 10019
Tsering Ngudu Executive Vice President None
1675 Broadway and Director
New York, NY 10019
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(c) Not applicable.
Item 28. Location of Accounts and Records.
Accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder are maintained in the physical possession of the Registrant at Jacob
Asset Management LLC, 1675 Broadway, New York, New York 10019, the Registrant's
Adviser; Firstar Mutual Fund Services LLC, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, the Registrant's transfer agent and dividend distributing
agent; and at Firstar Bank, N.A., 615 East Michigan Street, Milwaukee, Wisconsin
53202, the Registrant's custodian.
Item 29. Management Services.
Not Applicable.
Item 30. Undertakings.
Not applicable.
842537.3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Pre-Effective Amendment No. 2 to the Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of New York, and State of New York, on the 22nd day of October, 1999.
JACOB INTERNET FUND INC.
By: /s/ Ryan I. Jacob
-------------------------
Ryan I. Jacob, President
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Pursuant to the requirements of the Securities Act of 1933, this Pre-Effective Amendment No. 2 to the Registration Statement has been signed below by the following persons in the capacities and on the date indicated below.
Signature Title Date
(1) Principal Executive Officer: President October 22, 1999
Ryan I. Jacob
By: /s/ Ryan I. Jacob
------------------------
Ryan I. Jacob
(2) Principal Financial and Accounting Officer Treasurer and Secretary October 22, 1999
Francis J. Alexander
By: /s/ Francis J. Alexander
-------------------------
Francis J. Alexander
(3) Majority of Directors
Ryan I. Jacob Director
Francis J. Alexander Director
William B. Fell Director
Christopher V. Hajinian Director
Leonard S. Jacob Director
Jeffrey I. Schwarzschild Director
By: /s/ Ryan I. Jacob
------------------------
Ryan I. Jacob* October 22, 1999
By: /s/ Francis J. Alexander
------------------------
Francis J. Alexander* October 22, 1999
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* Executed Powers of Attorney filed with Pre-Effective Amendment No. 1 to Registration Statement No. 333-82865 on September 24, 1999 and incorporated herein by reference.
842537.3
BATTLE FOWLER LLP
PARK AVENUE TOWER
75 EAST 55TH STREET
NEW YORK, N.Y. 10022-3205
(212) 856-7000
WRITER'S DIRECT DIAL NUMBER
WRITER'S FACSIMILE NUMBER
(212) 856-7816
October 22, 1999
Jacob Internet Fund Inc.
1675 Broadway
New York, NY 10019
Gentlemen:
We have acted as counsel to Jacob Internet Fund Inc., a Maryland corporation (the "Fund"), in connection with the preparation and filing of Registration Statement No. 333-82865 on Form N-1A and all amendments thereto (the "Registration Statement") covering shares of Common Stock, par value $.001 per share, of the Fund.
We have examined copies of the Articles of Incorporation and By-Laws of the Fund, the Registration Statement, and such other corporate records, proceedings and documents, including the consent of the Board of Directors and the minutes of the meeting of the Board of Directors of the Fund, as we have deemed necessary for the purpose of this opinion. In our examination of such material, we have assumed the genuineness of all signatures and the conformity to original documents of all copies submitted to us. As to various questions of fact material to such opinion, we have relied upon statements and certificates of officers and representatives of the Fund and others.
We are not admitted to the practice of law in any jurisdiction but the State of New York and we do not express any opinion as to the laws of other states or jurisdictions except as to matters of Federal law and, with respect to the limited scope of this opinion, Maryland corporate law.
Based upon and subject to the foregoing, we are of the opinion that the shares of Common Stock, par value $.001 per share, of the Fund, to be issued in accordance with the terms of the
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BATTLE FOWLER LLP PAGE 2
Jacob Internet Fund Inc. October 22, 1999
offering, as set forth in the Prospectus and Statement of Additional Information included as part of the Registration Statement, and when issued and paid for, will constitute validly authorized and legally issued shares of Common Stock, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to us in the Registration Statement under the heading "Legal Counsel" in the Prospectus and "Counsel and Independent Auditors" in the Statement of Information.
Very truly yours,
/s/Battle Fowler LLP |
Consent of Independent Accountants
We hereby consent to the inclusion in Pre-Effective Amendment No. 2 to the registration statement on Form N-1A (the "Registration Statement") of our report dated September 21, 1999, relating to the financial statements of Jacob Internet Fund (constituting the Jacob Internet Fund Inc.). We also consent to the references to our firm in the Prospectus and Statement of Additional Information.
/s/PricewaterhouseCoopers LLP September 29, 1999 |
Jacob Internet Fund Inc.
Financial Statements
July 13, 1999 through September 20, 1999
Report of Independent Accountants
To the Shareholders and Board of Directors of Jacob Internet Fund Inc.
In our opinion, the accompanying statement of assets and liabilities and the related statement of operations present fairly, in all material respects, the financial position of Jacob Internet Fund (constituting the Jacob Internet Fund Inc. and hereafter referred to as the "Fund") at September 20, 1999 and the results of its operations for the period from July 13, 1999 (inception) through September 20, 1999, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP September 21, 1999 |
ASSETS
Cash $ 100,000
Receivable from Adviser 80,375
Prepaid Expenses 36,362
------------------
Total Assets 216,737
------------------
LIABILITIES
Payable to Adviser 116,737
------------------
Total Liabilities 116,737
------------------
NET ASSETS $ 100,000
==================
Capital Shares outstanding $0.001 par value;
4,000,000,000 shares authorized 10,000
==================
Net asset value, offering and redemption
price per share (net assets/shares outstanding) $ 10.00
==================
|
EXPENSES:
Organizational expenses $ 80,375
Less: Expenses reimbursed by Adviser (80,375)
------------------
Net income/(loss) $ 0
==================
|
1. Organization
The Jacob Internet Fund Inc. (the "Corporation") was organized as a Maryland corporation on July 13, 1999 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its shares in series, each series representing a distinct portfolio with its own investment objectives and policies. The series presently authorized is the Jacob Internet Fund Inc. (the "Fund"). Pursuant to the 1940 Act, the Fund is a "diversified" series of the Corporation. The Fund has had no operations other than those related to organizational matters, including the sale of 10,000 shares of the Fund for cash in the amount of $10 per share to the initial investor (Ryan I. Jacob, Chief Executive Officer of Jacob Asset Management LLC - see Note 3) on September 20, 1999.
2. Significant Accounting Policies
Organization and Prepaid Initial State Registration and Insurance Expenses Expenses incurred by the Corporation in connection with the organization and initial public offering are expensed as incurred. These expenses were advanced by the Adviser, and the Adviser has agreed to reimburse the Fund for these expenses, subject to potential recovery (see Note 3). Prepaid initial state registration and insurance expenses are deferred and amortized over twelve months.
Federal Income Taxes
The Fund intends to comply with the requirements of the Internal Revenue
Code necessary to qualify as a regulated investment company and to make
the requisite distributions of income and capital gains to its
shareholders sufficient to relieve it from all or substantially all
Federal income taxes.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Investment Adviser
The Corporation has an Investment Advisory Agreement (the "Agreement") with Jacob Asset Management LLC (the "Adviser"), with whom certain officers and directors of the Corporation are affiliated, to furnish investment advisory services to the Fund. Under the terms of the Agreement, the Corporation, on behalf of the Fund, compensates the Adviser for its management services at the annual rate of 1.25% of the Fund's average daily net assets.
The Adviser has agreed to waive, through August 31, 2000, its management fee and/or reimburse the Fund's other expenses, including organization expenses, to the extent necessary to ensure that the Fund's operating expenses do not exceed 2.00% of its average daily net assets. Any such waiver or reimbursement is subject to later adjustment to allow the Adviser to recoup amounts waived or reimbursed to the extent actual fees and expenses for a fiscal year are less than the expense limitation cap of 2.00%, provided, however, that the Adviser shall only be entitled to recoup such amounts for a period of three years from the date such amount was waived or reimbursed.
4. Distribution and Service Plan
The Corporation, on behalf of the Fund, has adopted a distribution and service plan (the "Plan"), pursuant to Rule 12b-1 under the Investment Company Act. The Plan provides that the Fund will compensate the Adviser with a fee of 0.25% per annum of the Fund's average daily net assets for certain expenses and costs incurred in connection with providing shareholder servicing and maintaining shareholder accounts and to compensate parties with which it has written agreements and whose clients own shares of the Fund for providing servicing to their clients ("Shareholder Servicing"). The Plan also provides that the Lepercq de Neuflize Securities Inc. (the "Distributor") is paid a fee equal to 0.10% of the Fund's average daily net assets on an annual basis to permit payments to be made to broker-dealers and other financial institutions with which it has written agreements and whose clients are Fund shareholders for providing distribution assistance and promotional support to the Fund.
Jacob Asset Management LLC 1675 Broadway New York, NY 10019
September 20, 1999
Board of Directors of
Jacob Internet Fund Inc.
1675 Broadway
New York, NY 10019
Gentlemen:
I hereby subscribe for 10,000 shares of the Common Stock, $.001 par value per share, of Jacob Internet Fund Inc. (the "Fund"), a Maryland corporation (the "Corporation") in shares of the Fund, at $10.00 per share for an aggregate purchase price of $100,000. My payment in full is confirmed.
I hereby represent and agree that I am purchasing these shares of stock for investment purposes, for my own account and risk and not with a view to any sale, division or other distribution thereof within the meaning of the Securities Act of 1933 as amended, nor with any present intention of distributing or selling such shares. I further agree that if any of such shares are redeemed during the period that the deferred organizational expenses of the Corporation are being amortized, I will reimburse the Corporation the then unamortized organizational expenses in the same ratio as the number of shares redeemed bears to the number of such shares held at the time of redemption.
Very truly yours,
By:/s/ RYAN I. JACOB ------------------ |
Confirmed and Accepted:
JACOB INTERNET FUND INC.
By:/s/ FRANCIS J. ALEXANDER ------------------------- 865506.1 |
FUND ADMINISTRATION SERVICING AGREEMENT
This Agreement is made and entered into as of this 27th day of August, 1999, by and between The Jacob Internet Fund, a Maryland Corporation organized under the laws of the State of Maryland (hereinafter referred to as the "Company") on behalf of any of its series as described in Part IV of this Agreement (each such series is hereafter referred to as a "Fund" and, collectively as the "Funds"), and Firstar Mutual Fund Services, LLC, a limited liability company organized under the laws of the State of Wisconsin (hereinafter referred to as "Firstar").
WHEREAS, The Company is a open-ended management investment company which is registered under the Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, Firstar is in the business of providing fund administration services for the benefit of its customers.
NOW, THEREFORE, the Company and Firstar do mutually promise and agree as follows:
I. Appointment of Administrator
The Company hereby appoints Firstar as Administrator of the Funds on the terms and conditions set forth in this Agreement, and Firstar hereby accepts such appointment and agrees to perform the services and duties set forth in this Agreement in consideration of the compensation provided for herein.
II. Duties and Responsibilities of Firstar
A. General Fund Management
1. Act as liaison among all fund service providers.
2. Coordinate corporate formalities and Board communication by:
a. preparing and distributing meeting agendas and board materials including board resolutions and various financial, administrative and regulatory reports;
b. attending all regular or special board meetings, preparing and distributing minutes of such meetings and maintaining the corporate records and minute book for the Company;
c. updating directors' and officers' biographical information and questionnaires; and
d. evaluating independent auditor.
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3. Audits
a. Prepare appropriate schedules and assist
independent auditors.
b. Provide information to SEC and facilitate
audit process.
c. Provide office facilities for auditors and
SEC staff as appropriate.
4. Assist in overall operations of the Company, including the provision of office facilities, executive and administrative services and Firstar personnel to serve as officers of the Company to facilitate Company operations, all at Firstar's expense with the exception of the costs incurred when attending Board of Companyee meetings; and to provide stationary and office supplies at the Company's expense.
5. Create and maintain operations and compliance calendars and/or a compliance manual for the Company, detailing schedules for the various responsibilities of Firstar.
6. Shareholder Communications. Coordinate printing and distribution of prospectuses, statements of additional information, stickers (supplements) to prospectuses or statements of additional information, annual and semi-annual shareholder reports and proxy statements.
B. Compliance
1. Regulatory Compliance
a. Periodically monitor compliance with 1940 Act requirements, including:
1) Asset diversification tests;
2) Total return and yield calculations;
3) Code of ethics for independent,
disinterested directors;
4) Compliance with fidelity bond coverage require-
ments of Rule 17g-1 under the 1940 Act; and
5) Compliance with the NASD sales charge rule,
including the calculation and monitoring of
the sales charge cap and remaining amount for
asset-based sales charges.
b. Periodically monitor and report at Fund's quarterly board meeting or more frequently as required, compliance with the policies investment limitations and reinvestment restrictions of each Fund as set forth in its prospectus and statement of additional information.
2. Blue Sky Compliance
a. Prepare and file with the appropriate state securities authorities any and all required compliance or notice filings relating to the sales, qualification or registration of the securities of each Fund so as to enable
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each Fund to make a continuous offering of its shares in the fifty states, Puerto Rico, U.S. Virgin Islands, and Guam ("Blue Sky Jurisdictions").
b. Monitor sales and qualification status and make appropriate renewal filings in each Blue Sky Jurisdiction.
c. File prospectuses, statements of additional information or proxy statements for the Company in Blue Sky Jurisdictions as requested by the Company or such jurisdictions.
3. SEC Registration and Reporting
a. Assist in the preparation and filing of post-effective amendments to the Company's Registration Statement on Form N-1A to reflect the addition or deletion of Funds, general amendments, or annual updates including the preparation of Financial Data Schedules; and prepare and file supplements ("stickers") to any prospectus or statement of additional information for a Fund.
b. Prepare and file annual and semi-annual reports to shareholders as required under the 1940 Act, along with annual and semiannual reports on Form N-SAR (which shall be series and class-specific, as appropriate).
c. Assist in the preparation and filing of proxy statements, as requested by the Company (matters to be voted on may be class-specific), prepare minutes of shareholder meetings, and record ballot results and interface with proxy solicitation companies as required.
d. Prepare and file documents required to report and calculate Federal securities registration fees (such as notices on Form 24F-2).
e. File fidelity bond and any joint insurance agreements as required by Rule 17g-1 under the 1940 Act.
f. Provide for the EDGAR-ization or other appropriate preparation of all documents described above which must be filed electronically with the SEC.
4. IRS Compliance
a. Periodically monitor the Company's status as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended, through review of the following:
1) Asset diversification requirements;
2) Qualifying income requirements; and
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3) Distribution requirements.
b. Monitor short testing as required.
c. Calculate required distributions as required (including excise tax distributions).
C. Financial Reporting
1. Prepare monthly expense reports (by series and class where appropriate) including expense figures and accruals, monitoring of expense caps or reimbursements and calculation of advisory fees and 12b-1 accruals or payments; and calculate expense ratios for quarterly, semiannual or annual periods.
2. Prepare unaudited financial statements (by series and class where appropriate) for use in shareholder reports or prospectuses and statements of additional information.
3. Prepare other monthly operational reports as required including:
a. Sales figures (including shares sold, redeemed and reinvested, changes in share price in net sales and numbers of shareholders);
b. Performance information (including total return or yield for the month, quarter, year-to-date, fiscal year or average annual one-, five- or ten-year periods); and
c. Portfolio information (including turnover, top ten holdings, book gains/losses per share; net income/book income per share; basis).
4. Provide financial data required by Fund prospectus and statements of additional information.
5. Prepare financial reports for shareholders, the board, the SEC, and independent auditors.
6. Supervise the Company's Custodian and Fund Accounts in the maintenance of each Funds general ledger and in the preparation of each Fund's financial statements including oversight of expense accruals and payments, of the determination of net asset value of each Fund and of the Fund's shares, and of the declaration and payment of dividends and other distributions to shareholders.
D. Tax Reporting
1. Prepare and file on a timely basis appropriate federal and state tax returns including forms 1120/8613 with any necessary schedules.
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2. Prepare state income breakdowns where relevant.
3. File 1099 Miscellaneous for payments to directors and other service providers.
4. Monitor wash losses.
5. Calculate eligible dividend income for corporate shareholders.
III. Compensation
The Company agrees to pay Firstar for performance of the duties listed in this Agreement and the fees and out-of-pocket expenses as set forth in the attached Schedule A.
These fees may be changed from time to time, subject to mutual written Agreement between the Company and Firstar.
The Company agrees to pay all fees and reimbursable expenses within ten (10) business days following the mailing of the billing notice.
IV. Additional Funds
In the event that the Company establishes one or more Funds with respect to which it desires to have Firstar render fund administration services, under the terms hereof, it shall so notify Firstar in writing, and if Firstar agrees in writing to provide such services, such Funds will be subject to the terms and conditions of this Agreement, and shall be maintained and accounted for by Firstar on a discrete basis. The Funds currently covered by this Agreement are: Jacob Internet Fund.
V. Performance of Services; Limitation of Liability
A. Firstar shall exercise reasonable care in the performance of its duties under this Agreement. Firstar shall not be liable for any loss suffered by the Fund in connection with matters to which this Agreement relates, including losses resulting from mechanical breakdowns or the failure of communication or power supplies beyond Firstar's control, except a loss resulting from Firstar's refusal or failure to comply with the terms of this Agreement or from bad faith, negligence, or willful misconduct on its part in the performance of its duties under this Agreement. Notwithstanding any other provision of this Agreement, the Fund shall indemnify and hold harmless Firstar from and against any and all claims, demands, losses, expenses, and liabilities (whether with or without basis in fact or law) of any and every nature (including reasonable attorneys' fees) which Firstar may sustain or incur or which may be asserted against Firstar by any person arising out of any action taken or omitted to be taken by it in performing the services hereunder (i) in accordance with the foregoing standards, or (ii) in reliance upon any written or oral instruction provided to Firstar by any duly authorized officer of the Company, such duly authorized officer to be included in a list of authorized officers furnished to Firstar and as amended from time to time in writing by resolution of the Board of Companyees of the Company.
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In the event of a mechanical breakdown or failure of communication or power supplies beyond its control, Firstar shall take all reasonable steps to minimize service interruptions for any period that such interruption continues beyond Firstar's control. Firstar will make every reasonable effort to restore any lost or damaged data and correct any errors resulting from such a breakdown at the expense of Firstar. Firstar agrees that it shall, at all times, have contingency plans, that are comparable to those employed within the financial services industry, with appropriate parties, making reasonable provision for emergency use of electrical data processing equipment to the extent appropriate equipment is available. Representatives of the Company shall be entitled to inspect Firstar's premises and operating capabilities at any time during regular business hours of Firstar, upon reasonable notice to Firstar.
Regardless of the above, Firstar reserves the right to reprocess and correct administrative errors at its own expense.
B. In order that the indemnification provisions contained in this section shall apply, it is understood that if in any case the Company may be asked to indemnify or hold Firstar harmless, the Company shall be fully and promptly advised of all pertinent facts concerning the situation in question, and it is further understood that Firstar will use all reasonable care to notify the Company promptly concerning any situation which presents or appears likely to present the probability of such a claim for indemnification against the Company. The Company shall have the option to defend Firstar against any claim which may be the subject of this indemnification. In the event that the Company so elects, it will so notify Firstar and thereupon the Company shall take over complete defense of the claim, and Firstar shall in such situation initiate no further legal or other expenses for which it shall seek indemnification under this section. Firstar shall in no case confess any claim or make any compromise in any case in which the Company will be asked to indemnify Firstar except with the Company's prior written consent.
C. Firstar shall indemnify and hold the Company harmless from and against any and all claims, demands, losses, expenses, and liabilities (whether with or without basis in fact or law) of any and every nature (including reasonable attorneys' fees) which may be asserted against the Company by any person arising out of any action taken or omitted to be taken by Firstar as a result of Firstar's refusal or failure to comply with the terms of this Agreement, its bad faith, negligence, or willful misconduct.
VI. Confidentiality
Firstar shall handle, in confidence, all information relating to the Company's business which is received by Firstar during the course of rendering any service hereunder.
VII. Data Necessary to Perform Service
The Company or its agent, which may be Firstar, shall furnish to Firstar the data necessary to perform the services described herein at times and in such form as mutually agreed upon.
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VIII. Terms of Agreement
This Agreement shall become effective on and, unless sooner terminated as provided herein, shall continue automatically in effect for successive two year periods, provided that the continuance of the Agreement is approved by a majority of the Directors of the Company. The Agreement may also be terminated by either party upon giving ninety (90) days prior written notice to the other party or such shorter period as is mutually agreed upon by the parties and will terminate automatically on its assignment unless the parties hereto consent in writing.
IX. Duties in the Event of Termination
In the event that, in connection with termination, a successor to any of Firstar's duties or responsibilities hereunder is designated by the Company by written notice to Firstar, Firstar will promptly, upon such termination and at the expense of the Company, transfer to such successor all relevant books, records, correspondence, and other data established or maintained by Firstar under this Agreement in a form reasonably acceptable to the Company (if such form differs from the form in which Firstar has maintained, the Company shall pay any expenses associated with transferring the data to such form), and will cooperate in the transfer of such duties and responsibilities, including provision for assistance from Firstar's personnel in the establishment of books, records, and other data by such successor.
X. Choice of Law
This Agreement shall be construed in accordance with the laws of the State of Wisconsin.
XI. Notices
Notices of any kind to be given by either party to the other party shall be in writing and shall be duly given if mailed or delivered as follows: Notice to Firstar shall be sent to:
Firstar Mutual Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202
and notice to the Company shall be sent to:
Jacob Internet Fund
1675 Broadway
New York, New York 10019
XII. Records
Firstar shall keep records relating to the services to be performed hereunder, in the form and manner, and for such period as it may deem advisable and is agreeable to the Company and as required by the rules and regulations of appropriate government authorities, in particular, Section 31 of the 1940 Act and the rules thereunder. Firstar agrees that all such records prepared or maintained by Firstar relating to the services to be performed by Firstar hereunder are the property of the Company and will be preserved, maintained, and made available with such
880093.1
section and rules of the 1940 Act and will be promptly surrendered to the Company on and in accordance with its request.
JACOB INTERNET FUND FIRSTAR MUTUAL FUND SERVICES, LLC
By: By:
--------------------------- ----------------------------
Print: Print:
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Title: Title:
--------------------------- ----------------------------
Date: Date:
--------------------------- ----------------------------
Attest: Attest:
--------------------------- ----------------------------
130274v.02
-8-
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|
Schedule A
Fund Administration and Compliance
Annual Fee Schedule
o Minimum annual fee per Fund: $35,000
o 7 basis points (.0007) on the first $200,000,000 of average daily net assets
o 5 basis points (.0005) on the next $500,000,000 of average daily net assets
o 4 basis points (.0004) on the balance
o Out-of-Pocket expenses, including, but not limited to:
o Postage
o Stationary
o Programming
o Proxies
o Retention of Records
o Special reports
o Federal and state regulatory filing fees
o Certain insurance premiums
o All other out-of-pocket expenses
o Expenses from Board of Companyees meetings
o Auditing & legal expenses
o Fees are billed monthly
130274v.02
880093.1