<PAGE>
JACOB INTERNET FUND, INC.
ANNUAL REPORT
AUGUST 31, 2000
The Jacob Internet Fund is a mutual fund whose primary investment
objective is long-term growth of capital with current income
as a secondary objective.
Investment Adviser
JACOB ASSET MANAGEMENT
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Letter from the Manager.............. 1
Schedule of Investments.............. 3
Statement of Assets and
Liabilities.......................... 5
Statement of Operations.............. 6
Statement of Changes in Net Assets... 7
Financial Highlights................. 8
Notes to Financial Statements........ 9
Report of Independent Certified
Public Accountants................... 12
</TABLE>
<PAGE>
JACOB INTERNET FUND
Dear Shareholders,
We are pleased to present our first annual report since the Fund's inception
on December 14, 1999. Much has transpired in the Fund's first fiscal year, with
a severe decline in Internet stock valuations occurring within the first several
months of our launch. While market conditions have been especially difficult, we
continue to expect to see significant opportunities for investment in those
companies that are tied closely to the development and growth of the Internet
worldwide. As many of these industries are still in their infancy, we are
experiencing the formation of those companies that we believe will be the next
millennium's leaders. At the Jacob Internet Fund, it is our mission to identify
and invest in these early stage companies and therefore realize the appreciation
that should result as they emerge as very substantial businesses.
In closing, we would like to thank you for your support during a difficult
year for investing in the Internet sector. We know that you have many choices in
how to invest your money and appreciate the trust you have placed in us.
If you have any questions, please call the Fund at 1-888-522-6239 or contact
the Fund at our web address at [email protected].
Very truly yours,
Ryan Jacob
President and Chief Executive Officer
1
<PAGE>
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
Date Jacob Internet Fund S&P 500 Index NASDAQ Composite
---------------------------------------------------------------------
<S> <C> <C> <C>
12/14/99 10,000 10,000 10,000
---------------------------------------------------------------------
2/29/00 10,240 9,678 12,844
---------------------------------------------------------------------
5/31/00 5,000 10,093 9,304
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8/31/00 5,540 10,813 11,512
---------------------------------------------------------------------
</TABLE>
FOR PERIOD ENDED AUGUST 31, 2000
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<TABLE>
<CAPTION>
CUMULATIVE SINCE
COMMENCEMENT OF OPERATIONS
--------------------------
<S> <C>
Jacob Internet Fund......................................... (44.60)%
S&P 500..................................................... 8.13%
NASDAQ Composite............................................ 15.12%
</TABLE>
The Standard & Poor's 500 Index (S&P 500) 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. 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
<PAGE>
JACOB INTERNET FUND
SCHEDULE OF INVESTMENTS
AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
------ -----
<S> <C> <C> <C>
COMMON STOCKS 94.6%
INTERNET -- CONTENT 52.6%
170,000 About.com, Inc.* $ 7,416,250
250,000 Ask Jeeves, Inc.* 7,625,000
100,000 CMGI Inc.* 4,475,000
75,000 Critical Path, Inc.* 5,793,750
140,000 Digital Insight Corporation* 3,710,000
170,000 DoubleClick Inc.* 6,916,875
280,000 EarthWeb Inc.* 3,815,000
930,000 iVillage Inc.* 6,219,375
270,000 Lifeminders.com, Inc.* 8,100,000
200,000 MarketWatch.com, Inc.* 2,350,000
476,500 MyPoints.com, Inc.* 6,492,312
500,000 StarMedia Network, Inc.* 4,250,000
------------
67,163,562
INTERNET -- SOFTWARE 28.8%
35,000 Aether Systems, Inc.* 4,847,500
80,000 Akamai Technologies, Inc.* 6,045,000
196,000 Be Free, Inc.* 1,188,250
100,000 Commerce One, Inc.* 6,253,125
150,000 Keynote Systems, Inc.* 4,537,500
118,800 Netcentives Inc.* 1,143,450
50,000 Phone.com, Inc.* 4,621,875
75,000 724 Solutions Inc.* 3,492,188
75,000 Tumbleweed Communications Corporation* 4,696,875
------------
36,825,763
RETAIL -- CATALOG 0.4%
200,000 dELiA*s Inc.* 500,000
RETAIL -- INTERNET 12.8%
100,000 eBay Inc.* 6,200,000
240,000 GoTo.com, Inc.* 4,470,000
210,000 Priceline.com Incorporated* 5,709,375
------------
16,379,375
------------
TOTAL COMMON STOCKS (COST $148,344,776) 120,868,700
------------
</TABLE>
See notes to the financial statements.
3
<PAGE>
JACOB INTERNET FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
------ -----
<S> <C> <C> <C>
SHORT-TERM INVESTMENTS 1.9%
VARIABLE RATE DEMAND NOTES # 1.9%
$1,539,388 Firstar Bank, N.A., 6.37% $ 1,539,388
898,801 Sara Lee Corporation, 6.22% 898,801
33,000 Wisconsin Corporate Central Credit Union, 6.29% 33,000
------------
TOTAL SHORT-TERM INVESTMENTS
(COST $2,471,189) 2,471,189
------------
TOTAL INVESTMENTS (COST $150,815,965) 96.5% 123,339,889
------------
OTHER ASSETS, LESS LIABILITIES 3.5% 4,439,668
------------
TOTAL NET ASSETS 100.0% $127,779,557
------------
------------
* Non-income producing 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,
2000.
</TABLE>
See notes to the financial statements.
4
<PAGE>
JACOB INTERNET FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (cost $150,815,965) $123,339,889
Cash 3,619
Receivable for investments sold 4,185,791
Receivable for capital shares sold 834,840
Interest receivable 14,989
Other assets 36,830
------------
Total Assets 128,415,958
------------
LIABILITIES:
Payable for investments purchased 257,625
Capital shares repurchased 66,401
Payable to Adviser 58,273
Accrued expenses and other liabilities 254,102
------------
Total Liabilities 636,401
------------
NET ASSETS $127,779,557
------------
------------
NET ASSETS CONSIST OF:
Capital Stock $235,844,265
Accumulated net realized loss on investments (80,588,632)
Net unrealized depreciation on investments (27,476,076)
------------
Total Net Assets $127,779,557
------------
------------
Shares outstanding (20 billion shares of $0.001 par
value authorized) 23,082,186
Net asset value, redemption price and offering price per
share $ 5.54
------------
------------
</TABLE>
See notes to the financial statements.
5
<PAGE>
JACOB INTERNET FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 14, 1999(1) TO AUGUST 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest income $ 588,216
-------------
EXPENSES
Investment advisory fee 1,634,140
Distribution expenses 457,559
Administration fee 91,843
Shareholder servicing and accounting costs 450,435
Custody fees 39,886
Federal and state registration 125,366
Professional fees 111,424
Reports to shareholders 29,956
Directors' fees and expenses 44,991
Other 13,251
-------------
Total operating expenses before reimbursements 2,998,851
Less: Reimbursements from Adviser (393,086)
-------------
Total expenses 2,605,765
-------------
NET INVESTMENT LOSS (2,017,549)
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (80,588,632)
Change in unrealized appreciation/depreciation on
investments (27,476,076)
-------------
Net realized and unrealized loss on investments (108,064,708)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(110,082,257)
-------------
-------------
</TABLE>
---------
(1) Commencement of Operations
See notes to the financial statements.
6
<PAGE>
JACOB INTERNET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 14, 1999(1)
TO AUGUST 31, 2000
------------------
<S> <C>
OPERATIONS:
Net investment loss $ (2,017,549)
Net realized loss on investments (80,588,632)
Change in unrealized appreciation/depreciation on
investments (27,476,076)
------------
Net decrease in net assets resulting from operations (110,082,257)
------------
CAPITAL SHARE TRANSACTIONS: (NOTE 3)
Proceeds from shares sold 359,641,309
Cost of shares redeemed (121,879,495)
------------
Net increase in net assets resulting from capital
share transactions 237,761,814
------------
NET INCREASE IN NET ASSETS 127,679,557
NET ASSETS:
Beginning of period 100,000
------------
End of period $127,779,557
------------
------------
</TABLE>
---------
(1) Commencement of operations.
See notes to the financial statements.
7
<PAGE>
JACOB INTERNET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 14, 1999(1)
THROUGH
AUGUST 31, 2000
---------------
<S> <C>
PER SHARE DATA:
Net asset value, beginning of period $ 10.00
------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment loss(2) (0.09)
Net realized and unrealized losses on investments (4.37)
------------
Total from investment operations (4.46)
------------
Net asset value, end of period $ 5.54
------------
------------
Total return(3) (44.60%)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $127,779,557
Ratio of operating expenses to average net assets before
reimbursement by Adviser(4) 2.30%
Ratio of operating expenses to average net assets after
reimbursement by Adviser(4) 2.00%
Ratio of net investment loss to average net assets
before reimbursement by Adviser(4) (1.85%)
Ratio of net investment loss to average net assets after
reimbursement by Adviser(4) (1.55%)
Portfolio turnover rate 195.24%
</TABLE>
---------
(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 for the period December 14, 1999 through August 31, 2000.
(4) Annualized for the period December 14, 1999 through August 31, 2000.
See notes to the financial statements.
8
<PAGE>
JACOB INTERNET FUND
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2000
--------------------------------------------------------------------------------
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.
(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.
(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
9
<PAGE>
JACOB INTERNET FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
--------------------------------------------------------------------------------
each 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.
(g) Foreign Securities -- Investing in securities of foreign companies and
foreign governments involves special risks and considerations not typically
associated with investing in U.S. companies and the U.S. government. These
risks include revaluation of currencies and future adverse political and
economic developments. Moreover, securities of many foreign companies and
foreign governments and their markets may be less liquid and their prices
more volatile than those of securities of comparable U.S. companies and the
U.S. government.
NOTE 3 -- CAPITAL SHARE TRANSACTIONS
Transactions in shares of the Fund for the period ended August 31, 2000 were as
follows:
<TABLE>
<CAPTION>
DECEMBER 14, 1999 --
AUGUST 31, 2000
--------------------------
SHARES AMOUNT
------ ------
<S> <C> <C>
Sales 38,402,017 $359,641,309
Redemptions (15,329,831) (121,879,495)
----------- ------------
Net Increase 23,072,186 $237,761,814
----------- ------------
----------- ------------
SHARES OUTSTANDING:
Beginning of period 10,000
-----------
End of period 23,082,186
-----------
-----------
</TABLE>
NOTE 4 -- INVESTMENT TRANSACTIONS
During the period December 14, 1999 to August 31, 2000, purchases and sales of
investment securities (excluding short-term investments) for the Fund were
$521,227,506 and $292,346,604, respectively.
The following information for the Fund is as of August 31, 2000:
<TABLE>
<CAPTION>
COST FOR NET TAX TAX BASIS TAX BASIS
FEDERAL INCOME TAX UNREALIZED GROSS UNREALIZED GROSS UNREALIZED
PURPOSES APPRECIATION APPRECIATION DEPRECIATION
-------- ------------ ------------ ------------
<S> <C> <C> <C>
$171,931,719 $(51,063,019) $12,546,426 $63,609,445
</TABLE>
10
<PAGE>
JACOB INTERNET FUND
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 2000
--------------------------------------------------------------------------------
The Jacob Internet Fund realized, on a tax basis, post October losses through
August 31, 2000 of $55,870,688, 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 has agreed to voluntarily defer receipt of all or part of its
advisory fee and/or absorb the Funds' other expenses, including organization
expenses, to the extent necessary to ensure that the Fund's operating expenses,
do not exceed 2.00% of its average daily net assets.
To the extent that the Adviser defers or absorbs 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 the expense limits in effect at the time these
payments or reimbursements are proposed.
Firstar Mutual Fund Services, LLC serves as transfer agent, administrator and
accounting services agent for the Funds. Firstar Bank, N.A. serves as custodian
for the Funds.
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 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 that Lepercq de Neuflize
Securities, Inc. (the 'Distributor') is paid a fee equal to 0.10% of the Fund's
average daily net assets on an annual basis to permit payments to broker-dealers
and other financial institutions with which it has written agreements and whose
clients are Fund shareholders for providing distribution assistance and
promotional support to the Fund. The Fund incurred $457,559 in expenses pursuant
to the 12b-1 Plan for the period from December 14, 1999 to August 31, 2000.
11
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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, 2000, the related statements of operations and changes in net assets
and the financial highlights for the period December 14, 1999 to August 31,
2000. 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 audit.
We conducted our audit 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, 2000, by correspondence with the custodian. 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 audit 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, 2000, and the results of its operations and
changes in its net assets and the financial highlights for the period
December 14, 1999 to August 31, 2000, in conformity with accounting principles
generally accepted in the United States.
Ernst & Young LLP
September 29, 2000
12
<PAGE>
INVESTMENT ADVISOR
Jacob Asset Management of New York LLC
ADMINISTRATOR AND TRANSFER AGENT
AND DIVIDEND AGENT
Firstar Mutual Fund Services LLC
UNDERWRITER AND DISTRIBUTOR
Lepercq, de Neuflize Securities Inc.
CUSTODIAN
Firstar 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.
JACOB ASSET MANAGEMENT OF NEW YORK LLC
1675 BROADWAY, 16TH FLOOR, NEW YORK, NY 10019
1-888-JACOB-FX (522-6239)
WWW. JACOBINTERNET.COM
JACOB INTERNET
FUND, INC.
J A C O B I N T E R N E T F U N D
[LOGO]
ANNUAL
REPORT
---------------
August 31, 2000
