-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1drcy411rjyC6VLzNX9Wdl5xJaF0wAt16OzFN+eIzX7Wvy9ct/sQRiV60GsVmrS aWaHrPHByudoKwyJLd9F1w== 0000950117-03-004741.txt : 20031107 0000950117-03-004741.hdr.sgml : 20031107 20031107123916 ACCESSION NUMBER: 0000950117-03-004741 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030831 FILED AS OF DATE: 20031107 EFFECTIVENESS DATE: 20031107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JACOB INTERNET FUND INC CENTRAL INDEX KEY: 0001090372 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-09447 FILM NUMBER: 03984313 BUSINESS ADDRESS: STREET 1: C/O BATTLE FOWLER LLP STREET 2: 75 EAST 55TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2128567000 MAIL ADDRESS: STREET 1: C/O BATTLE FOWLER LLP STREET 2: 75 EAST 55TH STREET CITY: NEW YORK STATE: NY ZIP: 10022 N-CSR 1 a36206.txt JACOB INTERNET FUND INC. As filed with the Securities and Exchange Commission on November 7, 2003 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-09447 Jacob Internet Fund Inc. (Exact name of registrant as specified in charter) C/O Jacob Asset Management of New York, LLC 1675 Broadway New York, NY 10019 (Address of principal executive offices) (Zip code) Ryan Jacob C/O Jacob Asset Management of New York, LLC 1675 Broadway New York, NY 10019 (Name and address of agent for service) (212)-698-0700 Registrant's telephone number, including area code Date of fiscal year end: August 31, 2003 Date of reporting period: August 31, 2003 Item 1. Report to Stockholders. - ------------------------------- Jacob Internet Fund Inc. Annual Report August 31, 2003 The Jacob Internet Fund is a mutual fund with the primary investment objective of long-term growth of capital with current income as a secondary objective. Investment Adviser Jacob Asset Management of New York LLC [LOGO] TABLE OF CONTENTS Letter From the Manager.............. 1 Schedule of Investments.............. 3 Statement of Assets and 6 Liabilities........................ Statement of Operations.............. 7 Statement of Changes in Net Assets... 8 Financial Highlights................. 9 Notes to Financial Statements........ 10 Report of Independent Auditors....... 14 Additional Information............... 15
October 2003 Dear Fellow Investors, Over the past twelve months, we finally saw indications that the U.S. economy not only found stability but also picked up a bit of steam. This resumption of growth was a very positive backdrop for the equity markets, and we are happy to report that the Fund participated nicely in this recovery. While concerns such as budget deficits and a continued lackluster job market will likely temper growth for now, we are still optimistic about the opportunities we see for investment in the Internet sector. We continue to believe that the most attractive opportunities are in small-to-midsize companies, as these tend to be the best performers in the early stages of an economic recovery. Where last year we found a great many of our most attractive investments in value-oriented situations, today we see more of a balanced picture, with a number of new growth companies added to the portfolio. On the value front, we focused on companies that primarily rely on increased corporate spending on technology. We have yet to experience a significant pickup in business IT purchases that would warrant paying high-growth multiples. However, two trends that benefited a number of the companies in our portfolio -- robust consumer spending and growing online advertising -- led to sizable and, we believe, justifiable increases in valuation. This balance of value and growth stocks is not only a big distinction between us and our peers, but it also gives us a more balanced portfolio approach, which helps to mitigate some of the Fund's volatility. We are still engaged in an active trading strategy, although our overall turnover dropped over the past year. Just as a reminder, these shifts are generally made to reduce position sizes in times of uncertainty and to add to positions more aggressively when oversold conditions occur. This was a key part of our portfolio management strategy for the last two years and we expect it to remain so. As the Fund generated above average performance utilizing this strategy over up and down periods, we are even more convinced that it is a sound strategy in order to both manage risk and maximize returns. Our broad strategy for the Fund remains the same -- invest in those companies that we believe can succeed through superior business plans, well-capitalized balance sheets and strong partnerships. We are happy to report that we remain confident in the near-term prospects of our holdings, especially with the economic picture improving. In addition, if the economy's growth ends up being more robust than current forecasts, we believe the Internet sector will disproportionately benefit. This optimism in the growth of the sector is at the core of what drives our long-term viewpoint, and why we continue to believe the Fund is positioned well for the future. Once again, we would like to thank all shareholders for their trust and confidence and we look forward to a bright future together. Ryan Jacob Chief Portfolio Manager Please refer to page 2 for standardized performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. There are specific risks inherent in investing in the Internet area, particularly with respect to smaller capitalized companies and the high volatility of Internet stocks. Quasar Distributors, LLC, Distributor [Graph]
Jacob Internet Fund S&P 500'r' Index NASDAQ Composite Index ------------------- ---------------- ---------------- 12/14/99...... 10000 10000 10000 02/29/00...... 10250 9678 12844 08/31/00...... 5540 10813 11512 02/28/01...... 1720 8884 5896 08/31/01...... 830 8176 4954 02/28/02...... 790 8039 4759 08/31/02...... 600 6704 3621 02/28/02...... 800 6216 3694 08/31/03...... 1480 7513 5010
FOR PERIOD ENDED AUGUST 31, 2003 - --------------------------------------------------------------------------------
ANNUALIZED SINCE COMMENCEMENT ONE YEAR OF OPERATIONS -------- ------------- Jacob Internet Fund......................................... 146.67% (40.21)% S&P 500'r'.................................................. 12.07% (7.40)% NASDAQ Composite Index...................................... 38.36% (16.96)%
The Standard & Poor's 500'r' Index (S&P 500'r') is a capital-weighted index, representing the aggregate market value of the common equity of 500 stocks primarily traded on the New York Stock Exchange. The NASDAQ Composite Index is a broad-based capitalization-weighted index of all NASDAQ stocks. This chart assumes an initial gross investment of $10,000 made on December 14, 1999 (commencement of operations). Returns shown include the reinvestment of all dividends, but do not include the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed, may be worth more or less than the original cost. 2 JACOB INTERNET FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2003 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- COMMON STOCKS 82.9% - -------------------------------------------------------------------------------------------------- INTERNET -- COMMERCE 22.8% 160,323 Autobytel Inc.* $ 1,364,349 30,000 Digital River, Inc.* 1,334,000 16,000 eBay Inc.* 886,080 330,000 E*Trade Group, Inc.* 3,045,900 138,500 FreeMarkets, Inc.* 1,232,650 25,000 Getty Images, Inc.* 1,020,000 686,705 HomeStore, Inc.* 2,451,537 23,037 InterActiveCorp* 852,599 48,000 Monster Worldwide Inc.* 1,311,360 129,200 Netflix Inc.* 4,288,148 100,000 The Charles Schwab Corporation 1,086,000 233,604 ValueClick, Inc.* 2,160,837 ----------- 21,033,460 - -------------------------------------------------------------------------------------------------- INTERNET -- COMMUNICATIONS 7.4% 171,750 Aether Systems, Inc.* 929,167 26,500 CIENA Corporation* 172,250 99,600 Cosine Communications, Inc.* 553,776 149,000 GlobespanVirata, Inc.* 1,133,890 407,000 Nuance Communications Inc.* 2,185,590 222,250 Openwave Systems Inc.* 1,091,248 120,000 Terayon Communication Systems, Inc.* 782,400 ----------- 6,848,321 - -------------------------------------------------------------------------------------------------- INTERNET -- INFRASTRUCTURE 29.1% 20,000 Adobe Systems Incorporated 776,600 138,309 Agile Software Corporation* 1,381,707 1,000 Akamai Technologies, Inc.* 4,160 50,000 Apple Computer, Inc.* 1,131,500 41,100 Digital Insight Corporation* 984,345 182,000 Internet Security Systems, Inc.* 2,273,180 305,254 MatrixOne, Inc.* 1,614,794 143,624 Netegrity, Inc.* 1,388,844 10,000 Network Associates, Inc.* 139,200 100 OPNET Technologies, Inc.* 1,200 233,900 Palm, Inc.* 4,268,675 356,100 Plumtree Software, Inc.* 1,460,010 277,300 RealNetworks, Inc.* 1,752,536 287,700 Roxio, Inc.* 2,805,075 35,700 SafeNet, Inc.* 1,286,628
See notes to the financial statements. 3 JACOB INTERNET FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2003 - --------------------------------------------------------------------------------
SHARES VALUE ------ ----- COMMON STOCKS -- (CONTINUED) 82.9% - -------------------------------------------------------------------------------------------------- INTERNET -- INFRASTRUCTURE -- (CONTINUED) 29.1% 85,000 VeriSign, Inc.* $ 1,272,450 487,100 webMethods, Inc.* 4,393,642 ----------- 26,934,546 - -------------------------------------------------------------------------------------------------- INTERNET -- MEDIA CONTENT 23.6% 281,100 Alloy, Inc.* 1,852,449 69,600 Ask Jeeves, Inc.* 1,267,416 3,200 CNET Networks, Inc.* 26,944 53,650 DigitalThink, Inc.* 160,950 95,000 DoubleClick Inc.* 1,070,650 10,000 Electronic Arts Inc.* 897,500 126,686 InfoSpace, Inc.* 2,001,639 621,500 iVillage Inc.* 1,211,925 181,500 MarketWatch.com, Inc.* 1,493,745 26,500 Netease.com Inc. -- ADR*^ 1,349,115 38,700 Overture Services, Inc.* 964,791 90,100 SINA.com*^ 2,800,308 77,900 Sohu.com Inc.*^ 2,338,558 147,942 Take-Two Interactive Software, Inc.* 4,404,233 ----------- 21,840,223 ----------- TOTAL COMMON STOCKS (COST $55,854,227) 76,656,550 -----------
4 JACOB INTERNET FUND SCHEDULE OF INVESTMENTS AUGUST 31, 2003 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE ------ ----- SHORT-TERM INVESTMENTS 13.8% - -------------------------------------------------------------------------------------------------- U.S. GOVERNMENT AGENCY OBLIGATIONS 13.5% $12,500,000 Federal Home Loan Bank, 0.65%, 9/2/2003 $12,499,774 ----------- Total U.S. Government Agency Obligations 12,499,774 ----------- VARIABLE RATE DEMAND NOTES # 0.3% 15,958 American Family Financial Services, Inc., 0.7308% 15,958 242,489 Wisconsin Corporate Central Credit Union, 0.78% 242,489 ----------- Total Variable Rate Demand Notes 258,447 ----------- TOTAL SHORT-TERM INVESTMENTS (COST $12,758,221) 12,758,221 ----------- TOTAL INVESTMENTS (COST $68,612,448) 96.7% 89,414,771 ----------- OTHER ASSETS, LESS LIABILITIES 3.3% 3,092,281 ----------- TOTAL NET ASSETS 100.0% $92,507,052 ----------- -----------
* 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 rates listed are as of August 31, 2003. See notes to the financial statements. 5 JACOB INTERNET FUND STATEMENT OF ASSETS AND LIABILITIES AUGUST 31, 2003 - -------------------------------------------------------------------------------- ASSETS: Investments, at value (cost $68,612,448) $ 89,414,771 Receivable for investments sold 2,397,352 Receivable for capital shares sold 1,272,039 Interest receivable 270 Other assets 26,807 ------------- Total Assets 93,111,239 ------------- LIABILITIES: Payable for investments purchased 7,725 Capital shares repurchased 340,611 Payable to Adviser 93,731 Accrued expenses and other liabilities 162,120 ------------- Total Liabilities 604,187 ------------- NET ASSETS $ 92,507,052 ------------- ------------- NET ASSETS CONSIST OF: Capital Stock $ 261,069,873 Accumulated net realized loss on investments (189,365,144) Net unrealized appreciation on investments 20,802,323 ------------- Total Net Assets $ 92,507,052 ------------- ------------- Shares outstanding (20 billion shares of $0.001 par value authorized) 62,355,621 ------------- Net asset value, redemption price and offering price per share $ 1.48 ------------- -------------
See notes to the financial statements. 6 JACOB INTERNET FUND STATEMENT OF OPERATIONS FOR THE YEAR ENDED AUGUST 31, 2003 - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividend income $ 2,056 Interest income 120,040 ----------- Total Investment Income 122,096 ----------- EXPENSES Investment advisory fee 607,093 Distribution expenses 169,986 Administration fee 44,675 Shareholder servicing and accounting costs 292,486 Custody fees 28,427 Federal and state registration 42,288 Professional fees 79,323 Reports to shareholders 57,126 Directors' fees and expenses 40,106 Other 21,958 ----------- Total Operating Expenses Before Expense Reductions 1,383,468 ----------- Expense Reductions (Note 7) (349,940) ----------- Net Expenses 1,033,528 ----------- NET INVESTMENT LOSS (911,432) ----------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS Net realized gain on investments 18,959,885 Change in net unrealized appreciation/depreciation on investments 25,566,197 ----------- Net realized and unrealized gain on investments 44,526,082 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $43,614,650 ----------- -----------
See notes to the financial statements. 7 JACOB INTERNET FUND STATEMENTS OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED AUGUST 31, 2003 AUGUST 31, 2002 --------------- --------------- OPERATIONS: Net investment loss $ (911,432) $ (704,522) Net realized gain (loss) on investments 18,959,885 (20,310,313) Change in net unrealized appreciation/depreciation on investments 25,566,197 16,699,989 ------------ ------------- Net increase (decrease) in net assets resulting from operations 43,614,650 (4,314,846) ------------ ------------- CAPITAL SHARE TRANSACTIONS: (NOTE 3) Proceeds from shares sold 179,365,586 9,779,512 Cost of shares redeemed (142,564,481) (10,390,761) ------------ ------------- Net increase (decrease) in net assets resulting from capital share transactions 36,801,105 (611,249) ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS 80,415,755 (4,926,095) NET ASSETS: Beginning of period 12,091,297 17,017,392 ------------ ------------- End of period $ 92,507,052 $ 12,091,297 ------------ ------------- ------------ -------------
See notes to the financial statements. 8 JACOB INTERNET FUND FINANCIAL HIGHLIGHTS - --------------------------------------------------------------------------------
DECEMBER 14, 1999(1) YEAR ENDED YEAR ENDED YEAR ENDED THROUGH AUGUST 31, 2003 AUGUST 31, 2002 AUGUST 31, 2001 AUGUST 31, 2000 --------------- --------------- --------------- --------------- PER SHARE DATA: Net asset value, beginning of period $ 0.60 $ 0.83 $ 5.54 $ 10.00 ----------- ----------- ----------- ------------ INCOME FROM INVESTMENT OPERATIONS: Net investment loss(2) (0.01) (0.04) (0.05) (0.09) Net realized and unrealized gains (losses) on investments 0.89 (0.19) (4.66) (4.37) ----------- ----------- ----------- ------------ Total from investment operations 0.88 (0.23) (4.71) (4.46) ----------- ----------- ----------- ------------ Net asset value, end of period $ 1.48 $ 0.60 $ 0.83 $ 5.54 ----------- ----------- ----------- ------------ ----------- ----------- ----------- ------------ Total return 146.67% (27.71%) (85.02%)(4) (44.60%)(3) SUPPLEMENTAL DATA AND RATIOS: Net assets, end of period $92,507,052 $12,091,297 $17,017,392 $127,779,557 Ratio of gross operating expenses to average net assets 2.85%(5) 5.29%(5) 2.99%(6) 2.30%(6)(7) Ratio of net operating expenses to average net assets 2.13%(5) 4.60%(5) 2.82%(6) 2.00%(6)(7) Ratio of net investment loss to average net assets reflecting gross operating expenses (2.60%)(5) (5.06%)(5) (2.42%)(6) (1.85%)(6)(7) Ratio of net investment loss to average net assets reflecting net operating expenses (1.88%)(5) (4.37%)(5) (2.25%)(6) (1.55%)(6)(7) Portfolio turnover rate 363.27% 1,080.63% 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) The net operating expense ratio and the net investment loss ratio includes expense reductions from fees paid indirectly with brokerage commissions. (6) The net operating expense ratio and the net investment loss ratio includes expense reimbursements made by the Adviser. (7) Annualized. See notes to the financial statements. 9 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS AUGUST 31, 2003 - -------------------------------------------------------------------------------- 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 commenced operations on December 14, 1999. NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund. (a) Investment Valuation -- Investment securities traded on a national securities exchange are valued at their market value determined by their last sales price in the principal market in which these securities are normally traded except those traded on the NASDAQ NMS and Small Cap exchanges, 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. Securities traded on the NASDAQ NMS and Small Cap exchanges are valued at the NASDAQ Official Closing Price ('NOCP'). 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 at fair value using procedures approved by the Board of Directors that are designed to determine a security's 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 using 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. (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. 10 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2003 - -------------------------------------------------------------------------------- (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 accounting principles generally accepted in the United States 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 August 31, 2003, there were twenty billion shares, $0.001 par value, authorized. Transactions in shares of the Fund were as follows:
YEAR ENDED AUGUST 31, 2003 ---------------------------- SHARES AMOUNT ------ ------ Sales 181,576,002 $ 179,365,586 Redemptions (139,216,257) (142,564,481) ------------ ------------- Net Increase 42,359,745 $ 36,801,105 ------------ ------------- ------------- SHARES OUTSTANDING: Beginning of period 19,995,876 ------------ End of period 62,355,621 ------------ ------------
YEAR ENDED AUGUST 31, 2002 -------------------------- SHARES AMOUNT ------ ------ Sales 12,022,202 $ 9,779,512 Redemptions (12,540,592) (10,390,761) ----------- ------------ Net Decrease (518,390) $ (611,249) ----------- ------------ ------------ SHARES OUTSTANDING: Beginning of period 20,514,266 ----------- End of period 19,995,876 ----------- -----------
11 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2003 - -------------------------------------------------------------------------------- NOTE 4 -- INVESTMENT TRANSACTIONS During the year ended August 31, 2003, purchases and sales of investment securities (excluding short-term investments) for the Fund were $154,321,744 and $134,254,049, respectively. The Fund did not purchase U.S. Government securities as a part of its investment strategy for the year ended August 31, 2003. At August 31, 2003, the components of accumulated earnings/(losses) on a tax basis were as follows: Cost of Investments....................................... $ 73,482,494 -------------- -------------- Gross unrealized appreciation............................. 24,564,518 Gross unrealized depreciation............................. (8,632,241) -------------- Net unrealized appreciation............................... $ 15,932,277 -------------- -------------- Undistributed ordinary income............................. -- Undistributed long-term capital gain...................... -- -------------- Total distributable earnings.............................. $ -- -------------- -------------- Other accumulated losses.................................. $ (184,495,098) -------------- Total accumulated losses.................................. $ (168,562,821) -------------- --------------
At August 31, 2003, the Fund had an accumulated net realized capital loss carryover of $182,044,805, of which $92,168,445 expires in 2009 and $89,876,360 expires in 2010. 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, 2003 of $2,450,293, which are not recognized for tax purposes until the first day of the following fiscal year. The Fund made no distributions during the fiscal year ended August 31, 2003. 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. 12 JACOB INTERNET FUND NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2003 - -------------------------------------------------------------------------------- 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%. Reimbursed/absorbed expenses subject to potential recovery by year of expiration are as follows:
YEAR OF EXPIRATION AMOUNT - ------------------ ------ August 31, 2004...................................... $ 79,399
U.S. Bancorp Fund Services, LLC serves as transfer agent, administrator and accounting services agent for the Fund. U.S. 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 1940 Act. The Plan provides that the Fund will 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 Quasar Distributors, LLC, the Fund's distributor, 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 $169,986 in expenses pursuant to the 12b-1 Plan for the year ended August 31, 2003. NOTE 7 -- EXPENSE REDUCTIONS The Adviser has directed certain of the Fund's portfolio trades to brokers that paid a portion of the Fund's expenses. For the year ended August 31, 2003, the total expenses of the Fund were reduced $349,940 under this arrangement. In accordance with the requirements of the Securities and Exchange Commission, such amounts are required to be shown as an expense and have been included in each of the service provider fees in the Statement of Operations. 13 REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of the JACOB INTERNET FUND INC. We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of Jacob Internet Fund Inc. (the Fund), as of August 31, 2003, the related statements of operations for the year then ended and the statements of changes in net assets and financial highlights for the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on the financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of August 31, 2003, by correspondence with the custodian and brokers or other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Jacob Internet Fund Inc. at August 31, 2003, and the results of its operations for the year then ended, and changes in its net assets and the financial highlights for the periods indicated therein, in conformity with accounting principles generally accepted in the United States. ERNSTYOUNGLLP Milwaukee, Wisconsin September 24, 2003 14 ADDITIONAL INFORMATION INFORMATION ABOUT DIRECTORS The business and affairs of the Fund are managed under the direction of the Corporation's Board of Directors. Information pertaining to the Directors of the Corporation is set forth below. The Statement of Additional Information includes additional information about the Corporation's Directors and Officers and is available, without charge, upon request by calling toll-free 1-888-Jacob-fx (1-888-522-6239).
NUMBER OF TERM OF PORTFOLIOS OFFICE & IN FUND OTHER POSITION(S) LENGTH OF COMPLEX DIRECTORSHIPS HELD WITHIN TIME PRINCIPAL OCCUPATION DURING OVERSEEN HELD BY NAME, ADDRESS AND AGE THE CORPORATION SERVED(1) PAST FIVE YEARS BY DIRECTOR DIRECTOR --------------------- --------------- --------- --------------- ----------- -------- INDEPENDENT DIRECTORS: William B. Fell .............. Director Since Manager, Financial Analysis, 1 None 19 West 34th Street, 1999 Food and Support Services Suite 816A Division of ARAMARK New York, New York 10001 Corporation since March 2003; Age: 34 Director of Forecasting and Financial Systems, March 2002 - March 2003; Manager, Accounting Services, September 1996 - March 2002; Senior Accountant, March 1995 - September 1996, Maritrans Inc.; Senior Accountant, Ernst & Young LLP, September 1994 - March 1995. Christopher V. Hajinian ...... Director Since Self-Employed attorney; 1 None 19 West 34th Street, 1999 Litigation associate attorney, Suite 816A Naulty, Scaricamazza & New York, New York 10001 McDevitt Ltd., September Age: 34 1996 - August 1999. Jeffrey I. Schwarzschild ..... Director Since Associate attorney, Law Office 1 None 19 West 34th Street, 1999 of Mark E. Merin since April Suite 816A 2003; Associate attorney, New York, New York 10001 Goldstein, Gellman, Melbostad, Age: 32 Gibson & Harris, LLP ('Goldstein Gellman') June 2001 - March 2003; Consultant, International Venture Associates (high-level strategic consulting and business development firm), February 2000 - June 2001. Associate attorney, Goldstein Gellman from February 1999 through February 2000; worked as a contract attorney for several San Francisco Bay area firms, 1997-1999.
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NUMBER OF TERM OF PORTFOLIOS OFFICE & IN FUND OTHER POSITION(S) LENGTH OF COMPLEX DIRECTORSHIPS HELD WITHIN TIME PRINCIPAL OCCUPATION DURING OVERSEEN HELD BY NAME, ADDRESS AND AGE THE CORPORATION SERVED(1) PAST FIVE YEARS BY DIRECTOR DIRECTOR --------------------- --------------- --------- --------------- ----------- -------- INTERESTED DIRECTORS(3): Ryan I. Jacob(2)(3) .......... Director, Since Chairman and Chief Executive 1 None 19 West 34th Street, President, Chairman 1999 Officer of the Adviser; Chief Suite 816A of the Board and Portfolio Manager of The New York, New York 10001 Chief Executive Internet Fund, Inc. from Age: 34 Officer December 1997 - June 1999; Analyst for Horizon Asset Management from 1994 - August 1998. Leonard S. Jacob, M.D., Ph.D.(2)(4) .................. Director Since Chairman and Chief Executive 1 Macromed Inc., 1787 Sentry Park West, 1999 Officer, InKine Pharmaceutical Carelift Building 18, Suite 440, Company, Inc. since November International Blue Bell, Pennsylvania 19422 1997; President and Chief (a non-profit Age: 54 Executive Officer, Sangen medical relief Pharmaceutical Company since organization), June 1996; Independent Recording for Consultant to various the Blind and biotechnology companies since Dyslexic, June 1996; Co-founder and Saving Face (a Chief Operating Officer, non-profit Magainin Pharmaceutical Inc. organization 1989 - 1996; Worldwide V.P. for facially SmithKline Beckman, 1985-1989. disfigured children). OFFICERS: Francis J. Alexander ......... Vice President, Since Member of the Adviser and N/A N/A 19 West 34th Street Secretary and 1999 portfolio manager of the Fund Suite 816A Treasurer since inception in 1999, New York, New York 10001 Director of the Fund, 1999 - Age: 58 October 17, 2003; President, Alexander Capital Management, Inc., March 1985 to present; Managing Member, ACMG, LLC (registered investment adviser), October 1999 to present; Director and portfolio manager, 1998 - March 2002, chairman of investment committee, March 1999 - March 2002, Lepereq, de Neuflize & Co. Inc. (financial services company in investment advisory and broker/dealer business).
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NUMBER OF TERM OF PORTFOLIOS OFFICE & IN FUND OTHER POSITION(S) LENGTH OF COMPLEX DIRECTORSHIPS HELD WITHIN TIME PRINCIPAL OCCUPATION DURING OVERSEEN HELD BY NAME, ADDRESS AND AGE THE CORPORATION SERVED(1) PAST FIVE YEARS BY DIRECTOR DIRECTOR --------------------- --------------- --------- --------------- ----------- -------- Darren Chervitz .............. Anti-Money Since Director of Research for the N/A N/A 19 West 34th Street Laundering 2003 Adviser and the Fund since Suite 816A Compliance Officer July 1999; financial editor New York, New York 10001 and reporter, CBS MarketWatch, Age: 29 August 1996 - July 1999; technology stock analyst, ZDTV, August 1990 - July 1999.
- --------- (1) Each Director holds office during the lifetime of the Fund until their termination or until the election and qualification of his successor. (2) Ryan I. Jacob and Leonard S. Jacob are related to each other as nephew and uncle, respectively. (3) Ryan I. Jacob is deemed to be an 'interested person' of the Fund (as defined in the 1940 Act) because of his affiliation with the Adviser. (4) Under the 1940 Act definition of 'interested person,' Leonard S. Jacob qualifies as an independent director. Since the Fund's inception, Dr. Jacob acted and served in the role of independent director. In October 2003, the Board of Directors voted to re-classify Dr. Jacob as an interested Director as a result of a new 'best practice' corporate governance recommendation for mutual funds. 17 Jacob Internet Fund Inc. 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 [Jacob Internet Fund Logo] 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. Jacob Asset Management of New York LLC 19 West 34th Street, Suite 816A, New York, NY, 10001 1-888-Jacob-fx (522-6239) www.JacobInternet.com Annual Report August 31, 2003 Item 2. Code of Ethics. - ----------------------- The registrant has adopted a code of ethics that applies to the registrant's principal executive officer and principal financial officer and posted its code of ethics on its Internet website: www.jacobinternet.com. Item 3. Audit Committee Financial Expert. - ----------------------------------------- The registrant's board of directors has determined that William B. Fell possesses the technical attributes to qualify as an "audit committee financial expert" serving on the registrant's audit committee and designated William B. Fell as the "audit committee financial expert." Mr. Fell is independent under the standards set forth in Item 3 of Form N-CSR. Item 4. Principal Accountant Fees and Services. - ----------------------------------------------- Not required for annual reports filed for periods ending before December 15, 2003. Item 5. Audit Committee of Listed Registrants. - ---------------------------------------------- Not applicable to open-end investment companies. Item 6. [Reserved] - ------------------ Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End - ------------------------------------------------------------------------- Management Investment Companies. - -------------------------------- Not applicable to open-end investment companies. Item 8. [Reserved] - ------------------ Item 9. Controls and Procedures. - -------------------------------- (a) The registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer reviewed the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) as of a date within 90 days of the filing of this report. Based on their review, the registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer determined that the procedures are effectively designed to ensure that material information relating to the registrant is made known to them by others within the registrant and by the registrant's service providers. (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant's last fiscal half-year that materially affected, or were reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 10. Exhibits. - ------------------ (a) Any code of ethics or amendment thereto. Filed herewith. (b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (c) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Jacob Internet Fund Inc. ---------------------------------------- By (Signature and Title) /s/ Ryan Jacob --------------------------------------------- Ryan Jacob, President Date 11/3/03 ---------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Ryan Jacob --------------------------------------------- Ryan Jacob, President Date 11/3/03 ------------------------------------------------ By (Signature and Title) /s/ Francis Alexander --------------------------------------------- Francis Alexander, Treasurer Date 11/3/03 ------------------------------------------------ EX-99.CODE ETH 3 ex99-code.txt EXHIBIT (A) Exhibit A - --------- JACOB INTERNET FUND INC. Code of Ethics For Principal Executive Officer & Principal Financial Officer The Jacob Internet Fund Inc. (the "Company") requires the Principal Executive Officer, Principal Financial Officer, or other Company officers performing similar functions (the "Principal Officers"), to maintain the highest ethical and legal standards while performing their duties and responsibilities to the Company, with particular emphasis on those duties that relate to the preparation and reporting of the financial information of the Fund. The following principles and responsibilities shall govern the professional conduct of the Principal Officers: 1. HONEST AND ETHICAL CONDUCT The Principal Officers shall act with honesty and integrity, ethically handle actual or apparent conflicts of interest between personal and professional relationships, and shall report any material transaction or relationship that reasonably could be expected to give rise to a conflict of interest between their interests and those of the Fund to the Audit Committee, the full Board of Directors of the Company, and, in addition, to any other appropriate person or entity that may reasonably be expected to deal with any conflict of interest in timely and expeditious manner. The Principal Officers shall act in good faith, responsibly, with due care, competence and diligence, without misrepresenting material facts or allowing their independent judgment to be subordinated or compromised. 2. FINANCIAL RECORDS AND REPORTING The Principal Officers shall provide full, fair, accurate, timely and understandable disclosure in the reports and/or other documents to be filed with or submitted to the Securities and Exchange Commission or other applicable body by the Fund, or that is otherwise publicly disclosed or communicated. The Principal Officers shall comply with applicable rules and regulations of federal, state, and local governments, and other appropriate private and public regulatory agencies. The Principal Officers shall respect the confidentiality of information acquired in the course of their work and shall not disclose such information except when authorized or legally obligated to disclose. The Principal Officers will not use confidential information acquired in the course of their duties as Principal Officers. The Principal Officers shall share knowledge and maintain skills important and relevant to the Company's needs; shall proactively promote ethical behavior of the Company's employees and as a partner with industry peers and associates; and shall maintain control over and responsibly manage assets and resources employed or entrusted to them by the Company. 3. COMPLIANCE WITH LAWS, RULES AND REGULATIONS The Principal Officers shall establish and maintain mechanisms to oversee the compliance of the Company with applicable federal, state or local law, regulation or administrative rule, and to identify, report and correct in a swift and certain manner, any detected deviations from applicable federal, state or local law, regulation or rule. 4. COMPLIANCE WITH THIS CODE OF ETHICS The Principal Officers shall promptly report any violations of this Code of Ethics to the Audit Committee as well as the full Board of Directors of the Company and shall be held accountable for strict adherence to this Code of Ethics. A proven failure to uphold the standards stated herein shall be grounds for such sanctions as shall be reasonably imposed by the Board of Directors of the Company. 5. AMENDMENT AND WAIVER This Code of Ethics may only be amended or modified by approval of the Board of Directors. Any substantive amendment that is not technical or administrative in nature or any material waiver, implicit or otherwise, of any provision of this Code of Ethics shall be communicated publicly in accordance with Item 2 of Form N-CSR under the Investment Company Act of 1940, as amended. Adopted by the Board of Directors on October 17, 2003 EX-99.CERT 4 ex99-cert.txt EXHIBIT (B) EX.99.CERT Exhibit B - --------- CERTIFICATIONS -------------- I, Ryan Jacob, certify that: 1. I have reviewed this report on Form N-CSR of Jacob Internet Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 11/3/03 /s/ Ryan Jacob ------------------------- ---------------------------------------- Ryan Jacob Chief Executive Officer EX.99.CERT CERTIFICATIONS -------------- I, Francis Alexander, certify that: 1. I have reviewed this report on Form N-CSR of Jacob Internet Fund Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: 11/3/03 /s/ Francis Alexander --------------------------- ---------------------------------------- Francis Alexander Treasurer EX-99.906 5 ex99-906cert.txt EXHIBIT (C) EX.99.906CERT Exhibit C - --------- Certification Pursuant to Section 906 of the Sarbanes-Oxley Act --------------------------------------------------------------- Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, each of the undersigned officers of the Jacob Internet Fund Inc., does hereby certify, to such officer's knowledge, that the report on Form N-CSR of the Jacob Internet Fund Inc. for the year ended August 31, 2003 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as applicable, and that the information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Jacob Internet Fund Inc. for the period presented in this report. /s/ Ryan Jacob /s/ Francis Alexander - ------------------------------------- --------------------------------------- Ryan Jacob Francis Alexander Chief Executive Officer, Treasurer, Jacob Internet Fund Inc. Jacob Internet Fund Inc. Dated: _11/3/03______________ This statement accompanies this report on Form N-CSR pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed as filed by Jacob Internet Fund Inc. for purposes of the Securities Exchange Act of 1934. -----END PRIVACY-ENHANCED MESSAGE-----