THE INTERNET
FUND, INC.
[I-FUND LOGO]
SEMI-ANNUAL REPORT
JUNE 30, 1999
WWWFX
www.theinternetfund.com
<PAGE>
THE INTERNET FUND, INC.
Letter to Shareholders
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Dear Fellow Shareholders:
We are pleased to present our semi-annual report highlighting the financial
performance of The Internet Fund for the first six months of 1999. We hope that
you have been satisfied with the returns generated through this remarkable
period of the Internet's growth. We will strive to continue to provide superior
investment returns and to offer informative and timely shareholder information
via our website, www.theinternetfund.com.
The first half of 1999 saw individual and institutional investors continuing to
recognize the vast growth potential of the Internet. This was reflected in the
Fund's return of 113% for the six months ended June 30, 1999. Although the
Internet sector has led the market during this period, we believe most of the
potential development of Internet e-commerce has yet to be exploited. Thus, it
is our view that the Internet space should provide investors with impressive
returns for many years to come.
As is the case with any investment sector, there will be, undoubtedly, periods
of volatile share prices. This should be regarded as a relatively normal
occurrence. However, unlike other sectors, there currently exists an array of
companies that meet our investment criteria as well as many superb
Internet-related companies that have yet to make their public-market debut.
Therefore, The Internet Fund should find a variety of rewarding investment
opportunities during the course of the next 12 months. Naturally, the Fund will
endeavor to participate in these companies for the benefit of our shareholders.
We thank you for your confidence and look forward to continuing to assist you in
achieving your personal investment goals.
/s/ Steven R. Samson /s/ Peter B. Doyle
Steven R. Samson Peter B. Doyle
President Chief Investment Strategist
The Internet Fund, Inc. Kinetics Asset Management, Inc.
2
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THE INTERNET FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
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COMMON STOCKS - 89.3% SHARES VALUE
----------- -----------
ACCESS/BROADBAND - 11.4%
America Online, Inc.* 55,000 $ 6,077,500
At Home Corporation* 454,760 24,528,617
MindSpring Enterprises, Inc.* 200,000 8,862,500
PSINet, Inc.* 430,000 18,812,500
StarMedia Network, Inc.* 371,500 23,822,438
------------
82,103,555
------------
E-COMMERCE - 14.9%
Amazon.com, Inc.* 60,000 7,507,500
Bluefly, Inc.* 146,000 1,213,625
dELiA*s Inc.* 687,000 9,274,500
eBAY, Inc.* 178,000 26,944,750
TMP Worldwide, Inc.* 616,000 39,116,000
24/7 Media, Inc.* 600,000 23,100,000
------------
107,156,375
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INFRASTRUCTURE - 20.7%
Broadcast.com, Inc.* 249,500 33,323,844
Exodus Communications, Inc.* 250,000 29,984,375
Frontier Corporation 15,000 885,000
IXC Communications, Inc.* 400,000 15,725,000
NTL Incorporated* 320,000 27,580,000
Pacific Gateway Exchange, Inc.* 482,500 14,052,813
Qwest Communications International, Inc.* 252,500 8,348,281
RCN Corporation* 450,000 18,731,250
------------
148,630,563
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INTERNET TECHNOLOGY/SOFTWARE - 12.1%
Banyan Systems Incorporated* 993,000 10,860,937
Broadcom Corporation* 282,500 40,838,906
Inktomi Corporation 267,500 35,176,250
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86,876,093
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MEDIA CONTENT - 21.4%
About.com, Inc.* 586,900 30,445,438
AdForce, Inc.* 119,000 2,796,500
AT&T Corp. - Liberty Media Group* 22,000 808,500
CNET, Inc.* 80,000 4,610,000
DoubleClick, Inc.* 184,000 16,882,000
See Notes to the Financial Statements.
3
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THE INTERNET FUND, INC.
SCHEDULE OF INVESTMENTS
JUNE 30, 1999 (UNAUDITED)
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SHARES VALUE
----------- ------------
MEDIA CONTENT (continued)
GoTo.com, Inc.* 110,000 $ 3,080,000
MarketWatch.com, Inc.* 413,000 24,315,375
theglobe.com, Inc.* 1,295,000 25,495,313
TheStreet.com, Inc.* 240,000 8,640,000
Xoom.com, Inc.* 696,500 36,566,250
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153,639,376
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PORTALS - 4.1%
Lycos, Inc.* 283,000 26,000,625
Yahoo!, Inc.* 22,105 3,807,586
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29,808,211
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VENTURE CAPITAL - 4.7%
CMGI, Inc.* 290,000 33,078,125
Safeguard Scientifics, Inc.* 14,000 868,000
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33,946,125
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Total common stocks (Cost of $570,887,044) 642,160,298
------------
PRINCIPAL
SHORT-TERM INVESTMENTS - 9.3% AMOUNT
-----------
INVESTMENT COMPANIES - 5.7%
Firstar Institutional Money Market Fund $32,000,000 32,000,000
Firstar US Government Money Market Fund 8,761,758 8,761,758
------------
Total investment companies (Cost of $40,761,758) 40,761,758
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REPURCHASE AGREEMENT - 3.6%
Repurchase Agreement with Firstar Bank, 3.30%,
dated 6/30/99, due 7/1/99, collateralized by
GNMA II ARMS valued at $26,689,885. Repurchase
proceeds of $26,171,399. (Cost of $26,169,000) 26,169,000 26,169,000
------------
Total short-term investments (Cost of $66,930,758) 66,930,758
------------
Total investments - 98.6% (Cost of $637,817,802) 709,091,056
Other assets in excess of liabilities - 1.4% 10,380,270
------------
Total net assets - 100.0% $719,471,326
============
*Non-income producing security.
4 See Notes to the Financial Statements.
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THE INTERNET FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
JUNE 30, 1999 (UNAUDITED)
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ASSETS
Investments, at value (cost $637,817,802) $709,091,056
Cash 5,484,244
Receivable for Fund shares sold 5,391,474
Receivable for investments sold 5,036,236
Dividends receivable 17,506
Prepaid expenses 67,866
------------
Total assets 725,088,382
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LIABILITIES
Payable to Adviser 648,235
Payable for investments purchased 2,730,226
Payable for Fund shares repurchased 1,762,979
Accrued expenses and other liabilities 475,616
------------
Total liabilities 5,617,056
------------
TOTAL NET ASSETS $719,471,326
============
NET ASSETS CONSIST OF:
Paid in capital $623,838,762
Undistributed net investment loss (2,254,444)
Undistributed net realized gain on investments 26,613,754
Net unrealized appreciation on investments 71,273,254
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TOTAL NET ASSETS $719,471,326
============
Shares outstanding (50,000,000
shares authorized $ 0.001 par value) 21,484,236
Net Asset Value, Redemption Price
and Offering Price Per Share $ 33.49
============
See Notes to the Financial Statements.
5
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THE INTERNET FUND, INC.
STATEMENT OF OPERATIONS
JUNE 30, 1999 (UNAUDITED)
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INVESTMENT INCOME
Dividends $ 17,000
Interest 1,399,871
Other 1,411
-----------
Total investment income 1,418,282
-----------
EXPENSES
Investment advisory fee 2,440,203
Transfer agent fees and expenses 514,872
Legal fees 251,064
Administration fee 133,398
Registration fees 116,286
Audit fees 43,083
Custodian fees and expenses 26,297
Fund accounting fees 22,820
Reports to shareholders 22,229
Insurance expense 11,781
Directors' fees and expenses 624
-----------
Total expenses 3,582,657
-----------
Net investment loss (2,164,375)
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 25,990,457
Net change in unrealized appreciation of investments 66,515,029
-----------
Net gain on investments 92,505,486
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $90,341,111
===========
6 See Notes to the Financial Statements.
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THE INTERNET FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
JUNE 30, 1999 (UNAUDITED)
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<TABLE>
<CAPTION>
<S> <C> <C>
SIX MONTHS ENDED
JUNE 30, 1999 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1998
---------------- -----------------
OPERATIONS
Net investment loss ($2,164,375) ($90,058)
Net realized gain on investments 25,990,457 632,132
Net change in unrealized appreciation of investments 66,515,029 4,751,175
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Net increase in net assets resulting from operations 90,341,111 5,293,249
------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Net realized gain on investments -- (8,316)
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Total dividends and distributions -- (8,316)
------------ ------------
CAPITAL SHARE TRANSACTIONS
Net proceeds from shares sold 988,019,065 22,532,887
Reinvestment of distributions -- 7,974
Cost of shares redeemed (381,047,533) (5,816,862)
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Net increase in net assets from capital share transactions 606,971,532 16,723,999
------------ ------------
Total increase in net assets 697,312,643 22,008,932
NET ASSETS
Beginning of period 22,158,683 149,751
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End of period * $719,471,326 $22,158,683
============ ============
* Including undistributed net investment loss of ($2,254,444) ($90,069)
============ ============
CHANGES IN SHARES OUTSTANDING
Shares sold 32,587,355 1,814,360
Reinvestment of distributions -- 525
Shares redeemed (12,512,950) (433,255)
------------ ------------
Net increase in shares outstanding 20,074,405 1,381,630
============ ============
</TABLE>
See Notes to the Financial Statements.
7
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THE INTERNET FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS
JUNE 30, 1999 (UNAUDITED)
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NOTE 1.
ORGANIZATION OF THE FUND: The Internet Fund, Inc. (the "Fund") is registered
under the Investment Company Act of 1940 as a diversified, open-ended management
investment company. The Fund's primary investment objective is long-term growth
of capital, a goal it seeks by investing primarily in common stocks and
securities of domestic and foreign companies engaged in the Internet and
Internet-related activities or services. The Fund was incorporated in the state
of New York on March 12, 1996. Investment operations for the Fund began on
October 21, 1996. The following is a summary of significant accounting policies
followed by the Fund in the preparation of the financial statements.
NOTE 2.
SECURITY VALUATION: Portfolio securities that are listed on a U.S. securities
exchange (whether domestic or foreign) or The Nasdaq Stock Market ("NSM") for
which market quotations are readily available are valued at the last quoted sale
price as of 4:00 p.m., Eastern time on the day the valuation is made. Options,
futures, unlisted U.S. securities and listed U.S. securities not traded on the
valuation date for which market quotations are readily available are valued at
the most recent quoted bid price. Fixed-income securities (other than
obligations having a maturity of 60 days or less) are normally valued on the
basis of quotes obtained from pricing services, which take into account
appropriate factors such as institutional sized trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Fixed-income securities purchased with
remaining maturities of 60 days or less are valued at amortized cost if it
reflects fair value. Other assets and securities for which no quotations are
readily available (including restricted securities) will be valued in good faith
at fair value using methods determined by the Board of Directors of the Fund.
FEDERAL INCOME TAXES: It is the Fund's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and the Fund
intends to distribute investment company net taxable income and net capital
gains to shareholders. Therefore, no federal income tax provision is required.
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.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income and
distributions of net realized capital gains, if any, will be declared at least
annually.
FINANCIAL STATEMENT PRESENTATION: Certain classifications from prior periods
have been restated to conform with current period presentation.
8
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THE INTERNET FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
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OTHER: Security and shareholder transactions are recorded on trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income and dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recognized
on the accrual basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences relating to shareholder
distributions be reclassified to paid in capital.
NOTE 3.
INVESTMENT ADVISORY AGREEMENT: The Fund has entered into an investment advisory
agreement with Kinetics Asset Management, Inc. (the "Adviser"), whereby the
Adviser receives an annual management fee of 1.25% of average daily net assets.
NOTE 4.
SECURITIES TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments, for the six month period ended June 30, 1999 were
as follows:
Purchases Sales
--------- -----
U.S. Government Other U.S. Government Other
---------------------------------------------------------------------
-- $682,606,941 -- $142,904,144
As of June 30, 1999, unrealized appreciation (depreciation) for federal income
tax purposes was as follows:
Appreciated Depreciated
Net Appreciation Securities Securities
-----------------------------------------------------------
$65,625,786 $120,420,469 ($54,794,683)
At June 30, 1999, the cost of investments for federal income tax purposes was
$643,465,270. Any differences between book and tax are due primarily to wash
sale losses.
NOTE 5.
SPECIAL MEETING OF SHAREHOLDERS, MARCH 29, 1999: A Special Meeting of
Shareholders of The Internet Fund (the "Fund"), was held March 29, 1999, at 344
Van Buren Street, North Babylon, New York 11704. As of March 11, 1999, the
record date, outstanding shares of the Fund were 9,162,022.494. Holders of
5,886,831.000 shares of the Fund were present at the meeting in person or by
proxy, being the holders of a majority of the outstanding shares of the Fund and
thus constituting a quorum. The shareholders of the Fund elected to increase the
number of authorized shares of Common Stock from 10,000,000 to 50,000,000
shares.
Withhold/ Broker Shares
For Against Abstain Not Voted
--------------------------------------------------------------
5,873,302.000 13,529.000 0.000 3,275,191.494
9
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THE INTERNET FUND, INC.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999 (UNAUDITED)
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NOTE 6.
Subsequent Events: Effective July 19, 1999, the Board of Directors of the Fund
approved the imposition of a voluntary expense limitation being proposed by the
Adviser pursuant to which the Adviser will limit the annual operating expenses
of the Fund such that the Fund's annual operating expenses will not exceed two
(2.00%) percent, on an annualized basis, of the Fund's average daily net assets
for the year ending December 31, 1999. As of this date, the Adviser has not
stated its intentions with respect to the continuation of this voluntary expense
limitation for the year ending December 31, 2000.
Effective July 19, 1999, the Board of Directors of the Fund approved an
Administration Agreement and a Shareholder Servicing Agreement to be entered
into with the Adviser. Under the Administration Agreement, the Adviser will
serve as the Administrator of the Fund and receive an annual administration fee
equal to 0.15% of the Fund's average daily net assets. The Adviser will be
responsible for the payment of such fees to Firstar Mutual Fund Services, LLC
("Firstar") for certain sub-administrative services rendered to the Fund by
Firstar. Under the Shareholder Servicing Agreement, the Fund will pay the
Adviser an annual shareholder servicing fee equal to 0.25% of the Fund's average
daily net assets. The administration and shareholder servicing fees are in
addition to the compensation that the Adviser receives under the Advisory
Agreement with the Fund.
10
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THE INTERNET FUND, INC.
FINANCIAL HIGHLIGHTS
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<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the year For the year
Six Months Ended ended ended October 21, 1996(1)
June 30, 1999 December 31, December 31, ended
(Unaudited) 1998 1997 December 31, 1996
PER SHARE DATA(5)
Net Asset Value, Beginning of Period $15.72 $5.31 $4.71 $5.00
-------- -------- -------- --------
Income from Investment Operations:
Net investment income (loss) (0.10)(4) (0.08) 0.01 0.02
Net realized and unrealized gain
(loss) on investments 17.87 10.50 0.59 (0.31)
-------- -------- -------- --------
Total gain (loss) from investment operations 17.77 10.42 0.60 (0.29)
-------- -------- -------- --------
Less Distributions:
From realized gains -- (0.01) -- --
-------- -------- -------- --------
Net Asset Value, End of Period $33.49 $15.72 $5.31 $4.71
======== ======== ======== ========
Total Return 113.04%(2) 196.14% 12.74% (5.80%)(2)
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's) $719,471 $22,159 $150 $113
Ratio of expenses to average net assets:
Before expense reimbursement 1.83%(3) 3.08% 3.60% 6.73%(3)
After expense reimbursement 1.83%(3) 3.08% 0.08% 0.21%(3)
Ratio of investment income to average net assets:
Before expense reimbursement (1.11%)(3) (2.92%) (3.33%) (4.15%)(3)
After expense reimbursement (1.11%)(3) (2.92%) 0.19% 2.01%(3)
Portfolio turnover rate 42% 80% 50% 0%
</TABLE>
(1) Commencement of Operations.
(2) Not annualized.
(3) Annualized.
(4) Net investment loss per share is calculated using ending balances prior to
consideration of adjustments for permanent financial reporting and tax
differences.
(5) Information presented relates to a share of capital stock outstanding for
the entire period.
See Notes to the Financial Statements.
11
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THE INTERNET FUND, INC.
477 Madison Avenue, 16th Floor
New York, NY 10022
INVESTMENT ADVISER
AND ADMINISTRATOR
Kinetics Asset Management, Inc.
477 Madison Avenue, 16th Floor
New York, NY 10022
INDEPENDENT ACCOUNTANTS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, OH 44145
DISTRIBUTOR
T.O. Richardson Securities, Inc.
2 Bridgewater Road
Farmington, CT 06032
SUB-ADMINISTRATOR,
FUND ACCOUNTANT AND
TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, WI 53202
This material must be preceded or accompanied by
a prospectus.
