N-30D 1 a32391.txt JACOB INTERNET FUND, INC. SEMI-ANNUAL REPORT Dear Fellow Investors, We are pleased to report that market conditions have shown improvement from post-Sept. 11th lows, and that the Fund has performed relatively well in this uncertain environment. While our economy has shown surprising resiliency under the most difficult of circumstances, we are still likely to have a bumpy road ahead as external factors continue to affect the markets. That being said, we are still optimistic on a gradual recovery in the economy and markets this year, but are balancing this view by more actively managing the Fund's risk profile. Specifically, as we have modest expectations for the broader market averages this year, we believe that stock selection will be even more critical in order to achieve significant outperformance. Our recent additions to the Fund in broadband infrastructure and online travel companies are examples of areas where we expect growth to exceed broader economic improvement rates by a wide margin. Additionally, we have been engaging in a more active portfolio management approach, increasing and decreasing holding percentages based on a combination of risk profiling and valuation methodologies. While this has resulted in a more active trading style than the Fund has had historically, it has resulted in a decrease in the Fund's overall volatility. We believe that this combination of an increased focus on stock selection and a higher level of risk management should position the Fund well in the current market climate. Once again, we would like to thank all shareholders for their trust and confidence and look forward to a promising future together. Ryan Jacob Portfolio Manager Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security. Please see the following semi-annual report for fund holdings. As of February 28, 2002, the Fund's 1-year and since inception (12-14-99) average annual total returns were (54.07)% and (68.23)%, respectively. Past performance does not guarantee future results. Investment return and principal value will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Quasar Distributors, LLC, distributor. (04/02) JACOB INTERNET FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2002 (UNAUDITED) --------------------------------------------------------------------------------
SHARES VALUE ------ ----- COMMON STOCKS 98.5% INTERNET -- COMMERCE 27.0% 15,000 Agile Software Corporation* $ 150,750 104,000 Autobytel Inc.* 312,000 1,000 eBay Inc.* 52,050 30,000 E*Trade Group, Inc.* 243,000 8,000 Expedia, Inc -- Class A* 447,200 25,000 Getty Images, Inc.* 642,000 875,000 HomeStore.com, Inc.* 1,067,500 10,000 Multex.com, Inc.* 39,700 30,000 The Charles Schwab Corporation 391,200 30,000 USA Networks, Inc.* 886,800 ----------- 4,232,200 ------------------------------------------------------------------------------------------------ INTERNET -- COMMUNICATIONS 27.5% 130,000 Aether Systems, Inc.* 546,000 60,000 GlobespanVirata, Inc.* 672,600 10,000 Newport Corporation * 189,100 90,000 Nuance Communications Inc.* 522,000 140,000 ONI Systems Corp.* 764,400 30,000 Openwave Systems Inc.* 167,700 20,000 SpeechWorks International Inc.* 158,000 120,000 Terayon Communication Systems, Inc.* 709,200 50,000 WebEx Communications, Inc.* 571,000 ----------- 4,300,000 ------------------------------------------------------------------------------------------------ INTERNET -- INFRASTRUCTURE 25.9% 2,000 Adobe Systems Incorporated 72,760 10,000 Akamai Technologies, Inc.* 31,100 420,000 Be Free, Inc.* 609,000 5,000 Digital Insight Corporation* 117,650 25,000 Internet Security Systems, Inc.* 592,750 785,000 Intertrust Technologies Corporation* 800,700 10,000 MatrixOne, Inc.* 113,200 10,000 Netegrity, Inc.* 123,400 10,000 Network Associates, Inc.* 237,200 80,000 OPNET Technologies, Inc.* 704,000 150,000 Palm, Inc.* 453,000 5,000 VeriSign, Inc.* 118,650 5,000 webMethods, Inc.* 86,000 ----------- 4,059,410 -----------
See notes to the financial statements. 2 JACOB INTERNET FUND SCHEDULE OF INVESTMENTS FEBRUARY 28, 2002 (UNAUDITED) --------------------------------------------------------------------------------
SHARES VALUE ------ ----- COMMON STOCKS -- (CONTINUED) 98.5% INTERNET-MEDIA CONTENT 18.1% 20,000 AOL Time Warner Inc.* $ 496,000 15,000 CNET Networks, Inc.* 71,400 20,000 DoubleClick Inc.* 215,400 440,000 iVillage Inc.* 902,000 153,000 MarketWatch.com, Inc.* 538,560 280,000 SINA.com*^ 462,000 10,000 Yahoo! Inc.* 144,600 ----------- 2,829,960 ----------- TOTAL COMMON STOCKS (COST $23,658,454) 15,421,570 -----------
PRINCIPAL AMOUNT ------ SHORT-TERM INVESTMENTS 4.8% VARIABLE RATE DEMAND NOTES # 4.8% $311,795 American Family Financial Services, Inc., 1.4726% 311,795 120,000 Wisconsin Corporate Central Credit Union, 1.52% 120,000 323,178 Wisconsin Electric Power Company, 1.4725% 323,178 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $754,973) 754,973 ----------- TOTAL INVESTMENTS (COST $24,413,427) 103.3% 16,176,543 ----------- LIABILITIES, LESS OTHER ASSETS (3.3)% (524,109) ----------- TOTAL NET ASSETS 100.0% $15,652,434 ----------- -----------
* Non-income producing security. ^ Foreign security. # Variable rate demand notes are considered short-term obligations and are payable upon demand. Interest rates change periodically on specified dates. The rate listed is as of February 28, 2002. See notes to the financial statements. 3 JACOB INTERNET FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS: Investments, at value (cost $24,413,427) $ 16,176,543 Receivable for investments sold 575,726 Receivable for capital shares sold 8,190 Interest receivable 806 Receivable from affiliate 35,982 Other assets 25,906 ------------- Total Assets 16,823,153 ------------- LIABILITIES: Payable for investments purchased 1,003,324 Capital shares repurchased 12,878 Payable to Adviser 13,132 Accrued expenses and other liabilities 141,385 ------------- Total Liabilities 1,170,719 ------------- NET ASSETS $ 15,652,434 ------------- ------------- NET ASSETS CONSIST OF: Capital Stock $ 225,382,406 Accumulated net realized loss on investments (201,493,088) Net unrealized depreciation on investments (8,236,884) ------------- Total Net Assets $ 15,652,434 ------------- ------------- Shares outstanding (20 billion shares of $0.001 par value authorized) 19,911,986 ------------- Net asset value, redemption price and offering price per share $ 0.79 ------------- -------------
See notes to the financial statements. 4 JACOB INTERNET FUND STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- INVESTMENT INCOME Dividend Income $ 723 Interest income 32,315 ------------ Total Investment Income 33,038 ------------ EXPENSES Investment advisory fee 108,665 Distribution expenses 19,123 Administration fee 17,226 Shareholder servicing and accounting costs 162,902 Custody fees 13,384 Federal and state registration 10,463 Professional fees 30,019 Reports to shareholders 21,666 Directors' fees and expenses 21,225 Other 15,180 ------------ Total expenses 419,853 ------------ NET INVESTMENT LOSS (386,815) ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net realized loss on investments (13,478,371) Change in net unrealized appreciation/depreciation on investments 13,226,979 ------------ Net realized and unrealized loss on investments (251,392) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (638,207) ------------ ------------
See notes to the financial statements. 5 JACOB INTERNET FUND STATEMENTS OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
SIX MONTHS YEAR ENDED ENDED FEBRUARY 28, 2002 AUGUST 31, 2001 ----------------- --------------- (UNAUDITED) OPERATIONS: Net investment loss $ (386,815) $ (1,051,907) Net realized loss on investments (13,478,371) (107,498,049) Net increase from payment by affiliate for net losses realized on investments not meeting the investment guidelines of the Fund -- 71,965 Change in net unrealized appreciation/depreciation on investments 13,226,979 6,012,213 ------------ ------------- Net decrease in net assets resulting from operations (638,207) (102,465,778) ------------ ------------- CAPITAL SHARE TRANSACTIONS: (NOTE 3) Proceeds from shares sold 5,614,341 27,596,949 Cost of shares redeemed (6,341,092) (35,893,336) ------------ ------------- Net decrease in net assets resulting from capital share transactions (726,751) (8,296,387) ------------ ------------- NET DECREASE IN NET ASSETS (1,364,958) (110,762,165) NET ASSETS: Beginning of period 17,017,392 127,779,557 ------------ ------------- End of period $ 15,652,434 $ 17,017,392 ------------ ------------- ------------ -------------
See notes to the financial statements. 6 JACOB INTERNET FUND FINANCIAL HIGHLIGHTS --------------------------------------------------------------------------------
DECEMBER 14, 1999(1) SIX MONTHS ENDED YEAR ENDED THROUGH FEBRUARY 28, 2002 AUGUST 31, 2001 AUGUST 31, 2000 ----------------- --------------- --------------- (UNAUDITED) PER SHARE DATA: Net asset value, beginning of period $ 0.83 $ 5.54 $ 10.00 ----------- ----------- ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.02) (0.05) (0.09) Net realized and unrealized losses on investments (0.02) (4.66) (4.37) ----------- ----------- ------------ Total from investment operations (0.04) (4.71) (4.46) ----------- ----------- ------------ Net asset value, end of period $ 0.79 $ 0.83 $ 5.54 ----------- ----------- ------------ ----------- ----------- ------------ Total return (4.82%)(3) (85.02%)(4) (44.60%)(3) SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period $15,652,434 $17,017,392 $127,779,557 Ratio of operating expenses to average net assets before reimbursement by Adviser 4.83%(5) 2.99% 2.30%(5) Ratio of operating expenses to average net assets after reimbursement by Adviser N/A 2.82% 2.00%(5) Ratio of net investment loss to average net assets before reimbursement by Adviser (4.45%)(5) (2.42%) (1.85%)(5) Ratio of net investment loss to average net assets after reimbursement by Adviser N/A (2.25%) (1.55%)(5) Portfolio turnover rate 851.33% 347.84% 195.24%
--------- (1) Commencement of operations. (2) Net investment loss per share is calculated using ending balances prior to consideration of adjustments for permanent book and tax differences. (3) Not annualized. (4) If certain losses had not been assumed by the affiliate, total return would have been lower by less than 0.01%. (5) Annualized. See notes to the financial statements. 7 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- NOTE 1 -- DESCRIPTION OF FUND 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. The Corporation currently consists of one 'diversified' series, the Jacob Internet Fund (the 'Fund') and the authorized capital stock of the Fund consists of twenty billion shares of stock having a par value of one-tenth of one cent ($0.001) per share. The primary investment objective of the Fund is long-term growth of capital. The Fund issued and sold 10,000 shares of its capital stock, at $10 per share on September 20, 1999. The Fund commenced operations on December 14, 1999. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Funds. (a) Investment Valuation -- Investment securities traded on a national securities exchange are valued at their market value determined by their last price in the principal market in which these securities are normally traded, unless there are no transactions on the valuation date, in which case they are valued at the mean between the closing asked and bid prices. Securities traded over-the-counter are valued at the last reported sales price unless there is no reported sales price, in which case the mean between the closing asked and bid prices is used. Debt securities with maturities of sixty days or less are valued at amortized cost, which approximates market value. Where market quotations are not readily available, securities are valued using methods which the Board of Directors believe in good faith accurately reflects their fair value. (b) Income Recognition -- Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. All discounts and premiums are amortized on the effective interest method for tax and financial reporting purposes. (c) Securities Transactions -- Security transactions are accounted for on the date the securities are purchased or sold. Realized gains and losses on securities sold are determined using the high cost method. During the course of the fiscal year ended August 31, 2001, the Fund incurred losses of $71,965 due to diversification breaks. These losses are noted in the financial statements and are being reimbursed by the Adviser. (d) Distributions to Shareholders -- The Fund records distributions to shareholders on the ex-dividend date. Dividends from net investment income, if any, are declared and paid annually. Distributions of net realized capital gains, if any, will be declared and distributed at least annually. The amounts of distributions from net investment income and net realized capital gains are determined in accordance with federal income tax regulations, which may differ from those amounts determined under generally accepted accounting principles. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent, reclassifications are made in the capital accounts in the period that the difference arises. The Fund 8 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction. (e) Federal Income Taxes -- The Fund intends to comply with provisions of the Internal Revenue Code applicable to regulated investment companies, including the distribution of substantially all of the Fund's taxable income. Accordingly, no provision for federal income taxes is considered necessary in the financial statements. (f) 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 amount of 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. NOTE 3 -- CAPITAL SHARE TRANSACTIONS At February 28, 2002, there were twenty billion shares, $0.001 par value, authorized. Transactions in shares of the Fund were as follows:
SIX MONTHS ENDED FEBRUARY 28, 2002 -------------------------- SHARES AMOUNT ------ ------ Sales 6,876,972 $ 5,614,341 Redemptions (7,479,252) (6,341,092) ----------- ------------ Net Decrease (602,280) $ (726,751) ----------- ------------ ----------- ------------ SHARES OUTSTANDING: Beginning of period 20,514,266 ----------- End of period 19,911,986 ----------- -----------
YEAR ENDED AUGUST 31, 2001 -------------------------- SHARES AMOUNT ------ ------ Sales 10,405,028 $ 27,596,949 Redemptions (12,972,948) (35,893,336) ----------- ------------ Net Decrease (2,567,920) $ (8,296,387) ----------- ------------ ----------- ------------ SHARES OUTSTANDING: Beginning of period 23,082,186 ----------- End of period 20,514,266 ----------- -----------
9 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- NOTE 4 -- INVESTMENT TRANSACTIONS During the six months ended February 28, 2002, purchases and sales of investment securities (excluding short-term investments) for the Fund were $122,672,117 and $123,812,354, respectively. The following information for the Fund is as of February 28, 2002:
COST FOR TAX BASIS TAX BASIS TAX BASIS FEDERAL INCOME TAX NET UNREALIZED GROSS UNREALIZED GROSS UNREALIZED PURPOSES DEPRECIATION APPRECIATION DEPRECIATION -------- ------------ ------------ ------------ $36,516,899 $(20,340,356) $1,562,617 $(21,902,973)
At August 31, 2001, the Fund had an accumulated net realized capital loss carryover of $92,790,048, expiring in 2009. To the extent the Fund realizes future net capital gains, taxable distributions to its shareholders will be offset by any unused capital loss carryover for the Fund. In addition, the Fund realized, on a tax basis, post October losses through August 31, 2001 of $76,598,167, which are not recognized for tax purposes until the first day of the following fiscal year. NOTE 5 -- INVESTMENT ADVISORY AND OTHER AGREEMENTS The Corporation has an Investment Advisory Agreement (the 'Agreement') with Jacob Asset Management of New York LLC (the 'Adviser'), with whom certain officers and Directors of the Board 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 based on an annual rate of 1.25% of the Fund's average daily net assets. The Adviser voluntarily deferred receipt of all or part of its advisory fee and/or absorbed the Fund's other expenses, including organization expenses, to the extent necessary to ensure that the Fund's operating expenses, did not exceed 2.00% of its average daily net assets from September 1, 2000 - December 31, 2000. To the extent that the Adviser has deferred or absorbed expenses, it may seek payment of such deferred fees or reimbursement of such absorbed expenses for three years after the year in which fees were deferred or expenses were absorbed. The Fund will make no such payment or reimbursement, however, if the total annual Fund operating expenses exceed 2.00%. U.S. Bancorp Fund Services, LLC (formerly Firstar Mutual Fund Services, LLC) serves as transfer agent, administrator and accounting services agent for the Fund. U.S. Bank, N.A. (formerly Firstar Bank, N.A.) serves as custodian for the Fund. NOTE 6 -- 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 10 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FEBRUARY 28, 2002 (UNAUDITED) -------------------------------------------------------------------------------- compensate the Adviser up to 0.25% per annum of the Funds' 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 for a distribution fee equal to 0.10% of the Fund's average daily net assets on an annual basis. Such a fee is paid in part to Lepercq de Neuflize Securities, Inc., with the balance paid at the direction of the Adviser to broker-dealers, other financial professionals whose clients are Fund shareholders, and for providing distribution assistance and promotional support to the Fund. The Fund incurred $19,123 in expenses pursuant to the 12b-1 Plan for the six months ended February 28, 2002. NOTE 7 -- SUBSEQUENT EVENT On February 21, 2002, the Board of Directors approved a change in distributor. Effective March 1, 2002, Quasar Distributors, LLC, (the 'Distributor') an affiliate of U.S. Bancorp Fund Services, LLC, will serve as distributor to the Fund. The Distributor will be paid an annual distribution fee of 0.10% of the average daily net assets of the Fund (the 'Distribution Fee') under the terms of the Fund's Rule 12b-1 Plan. This fee will be used to compensate the Distributor and, at the direction of the Adviser, to pay promotional and advertising expenses related to the distribution of the Fund's shares and expenses related to the printing of Fund prospectuses used in connection with the distribution and sale of Fund shares. 11 Investment Advisor Jacob Asset Management of New York LLC Administrator and Transfer Agent and Dividend Agent U.S. Bancorp Fund Services, LLC Underwriter and Distributor Quasar Distributors, LLC Custodian U.S. Bank, N.A. Independent Auditors Ernst & Young LLP This report has been prepared for the information of shareholders of the Jacob Internet Fund and is not authorized for distribution to prospective investors unless preceded or accompanied by an effective prospectus that includes information regarding the Fund's objectives, policies, management, records and other information. The prospectus should be read carefully before investing and can be obtained by calling: 1-888-Jacob-fx (522-6239) Jacob Asset Management of New York LLC 19 West 34th Street, Suite 816A, New York, NY, 10001 www. JacobInternet.com Jacob Internet Fund Inc. [LOGO] Semi-Annual Report ------------------- February 28, 2002