-----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, P1s7hk01UlRZnPB7dPMCy3bsRVgBuWcCLPOZFMCGcsKGxCxWE4piSN2HrUSq8EH8 F/hxrqKfnm2GRUoQVYpqwg== 0000950137-07-006237.txt : 20070427 0000950137-07-006237.hdr.sgml : 20070427 20070427171315 ACCESSION NUMBER: 0000950137-07-006237 CONFORMED SUBMISSION TYPE: N-CSR/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20070427 DATE AS OF CHANGE: 20070427 EFFECTIVENESS DATE: 20070427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KINETICS PORTFOLIOS TRUST CENTRAL INDEX KEY: 0001113229 IRS NUMBER: 223723753 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-CSR/A SEC ACT: 1940 Act SEC FILE NUMBER: 811-09923 FILM NUMBER: 07796828 BUSINESS ADDRESS: STREET 1: 16 NEW BROADWAY CITY: SLEEPY HOLLOW STATE: NY ZIP: 10591 BUSINESS PHONE: 9147036904 MAIL ADDRESS: STREET 1: 16 NEW BROADWAY CITY: SLEEPY HOLLOW STATE: NY ZIP: 10591 0001113229 S000007851 Kinetics Internet Portfolio C000021360 Kinetics Internet Portfolio 0001113229 S000007852 Kinetics Internet Emerging Growth Portfolio C000021361 Kinetics Internet Emerging Growth Portfolio 0001113229 S000007853 Kinetics Paradigm Portfolio C000021362 Kinetics Paradigm Portfolio 0001113229 S000007854 Kinetics Medical Portfolio C000021363 Kinetics Medical Portfolio 0001113229 S000007855 Kinetics Small Cap Portfolio C000021364 Kinetics Small Cap Portfolio 0001113229 S000007856 Kinetics Market Opportunities Portfolio C000021365 Kinetics Market Opportunities Portfolio 0001113229 S000017757 Kinetics Government Money Market Portfolio C000049028 Kinetics Government Money Market Portfolio N-CSR/A 1 c14637nvcsrza.txt AMENDMENT TO CERTIFIED SHAREHOLDER REPORT 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 811-09303 & 811-09923 KINETICS MUTUAL FUNDS, INC. & KINETICS PORTFOLIOS TRUST ------------------------------------------------------- (Exact name of registrant as specified in charter) 16 NEW BROADWAY SLEEPY HOLLOW, NY 10591 ----------------------- (Address of principal executive offices) (Zip code) U.S. BANCORP FUND SERVICES, LLC 615 EAST MICHIGAN STREET MILWAUKEE, WI 53202 ------------------- (Name and address of agent for service) (800) 930-3828 -------------- Registrant's telephone number, including area code Date of fiscal year end: DECEMBER 31, 2005 Date of reporting period: DECEMBER 31, 2005 This N-CSR was originally filed on March 10, 2006 and is being re-filed solely for the purpose of including the series and class identifiers for the Kinetics Government Money Market Portfolio. ITEM 1. REPORT TO STOCKHOLDERS. DECEMBER 31, 2005 WWW.KINETICSFUNDS.COM ANNUAL REPORT The INTERNET Fund The INTERNET EMERGING GROWTH Fund The PARADIGM Fund The MEDICAL Fund The SMALL CAP OPPORTUNITIES Fund The KINETICS GOVERNMENT MONEY MARKET Fund EACH A SERIES OF KINETICS MUTUAL FUNDS, INC. [KINETICS MUTUAL FUNDS, INC. LOGO] KINETICS MUTUAL FUNDS, INC. TABLE OF CONTENTS December 31, 2005
PAGE ---- Shareholders' Letter........................................ 2 Year 2005 Annual Market Commentary.......................... 4 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS Expense Example........................................... 16 Statement of Assets & Liabilities......................... 21 Statement of Operations................................... 25 Statements of Changes in Net Assets....................... 28 Notes to Financial Statements............................. 36 Financial Highlights...................................... 48 Report of Independent Registered Public Accounting Firm... 61 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS Allocation of Portfolio Assets............................ 62 Portfolio of Investments The Internet Portfolio........... 65 Portfolio of Investments The Internet Emerging Growth Portfolio.............................................. 71 Portfolio of Investments The Paradigm Portfolio........... 76 Portfolio of Investments The Medical Portfolio............ 85 Portfolio of Investments The Small Cap Opportunities Portfolio.............................................. 89 Portfolio of Investments The Kinetics Government Money Market Portfolio....................................... 97 Portfolio of Options Written The Internet Portfolio....... 98 Portfolio of Options Written The Internet Emerging Growth Portfolio.............................................. 99 Statement of Assets & Liabilities......................... 100 Statement of Operations................................... 103 Statements of Changes in Net Assets....................... 106 Notes to Financial Statements............................. 109 Report of Independent Registered Public Accounting Firm... 122
1 KINETICS MUTUAL FUNDS, INC. SHAREHOLDERS' LETTER Dear Fellow Shareholders: We are pleased to present the Kinetics Mutual Funds' Annual Report for the year ended December 31, 2005. The Kinetics Family of Mutual Funds had mixed results in 2005, with gains of 16.11% for The Paradigm Fund, 13.17% for the Small-Cap Opportunities Fund, and 2.65% for the Internet Emerging Growth Fund, and small losses of 1.69% for The Internet Fund, and 0.72% for the Medical Fund. This compares with the 2005 total returns, assuming dividends reinvested in the indices, of 4.91% for the S&P 500 Index and 2.13% for the NASDAQ Composite Index. Kinetics launched a new fund, the MARKET OPPORTUNITIES FUND, which commenced operations at the end of January 2006. The focus of this fund is to invest in those companies that benefit from increasing transaction volume, such as publicly-traded exchanges. For the Paradigm and Small-Cap Opportunities Funds, performance was primarily driven by the formerly financially distressed utility companies, as well as financial service companies. For the Internet and Internet Emerging Growth Funds, performance was attributable to the fact the Funds did not own many of the speculative names that had a relatively good year; instead, the Funds found more attractive valuations in companies that comprised each portfolio. The Medical Fund's performance can be traced to several unrelated difficulties in pharmaceutical manufacture and safety. This resulted in concomitant friction across the bio-pharmaceutical industry. We continue to inform our shareholders through our website, www.kineticsfunds.com. This website provides a broad array of information, including recent portfolio holdings, quarterly investment commentaries, newsflashes, recent performance data, and online access to account information. Kinetics offers the following funds to investors: THE PARADIGM FUND focuses on companies that currently have, or which should soon have, sustainable high returns on equity. The Fund has produced attractive returns over the last five years in what may be described as a very difficult period for equity investors. The Paradigm Fund is Kinetics' most conservative Fund. 2 THE SMALL CAP OPPORTUNITIES FUND focuses on undervalued and special situation small capitalization equities that have the potential for rewarding long- term investment results. THE MEDICAL FUND is a sector fund, offering an investment in scientific discovery within the promising field of medical research, particularly in the development of cancer treatments and therapies. As a sector fund, The Medical Fund is likely to have heightened volatility. THE INTERNET FUND is a sector fund that focuses on companies engaged in the evolution of Internet-related technology. As a sector fund with a focus on the Internet and Internet-related activities, this Fund has been, and is likely to continue to be, quite volatile. The Internet Fund is not designed to be a major component of one's equity exposure. We view this Fund's holdings as publicly traded venture capital and are quite aware that many of these investments will not fulfill their early promise. However, we expect that over time some small percentage will develop into excellent investments, allowing the fund to produce overall satisfactory, albeit lumpy, investment results. THE INTERNET EMERGING GROWTH FUND focuses upon early life cycle companies that are positioned on the edge of the curve in the evolution of the Internet and Internet-related activities. The statements made about the Internet Fund are equally applicable to this fund. THE KINETICS GOVERNMENT MONEY MARKET FUND is a short-term investment vehicle that helps to round out our equity product offerings. /s/ Peter B. Doyle Peter B. Doyle President Kinetics Mutual Funds, Inc. ----------------------- (1) The S&P 500 Index is a broad based unmanaged index of 500 stocks, which is widely recognized as representative of the equity market in general. You cannot invest directly in an index. (2) The NASDAQ Composite Index is a market capitalization-weighted index that is designed to represent the performance of the National Market System which includes over 5,000 stocks traded only over-the-counter and not on an exchange. You cannot invest directly in an index. 3 KINETICS MUTUAL FUNDS, INC. YEAR 2005 ANNUAL MARKET COMMENTARY Dear Fellow Shareholders, As noted in many past communications, we have no opinion regarding the short-term direction of the stock market because the number of variables that might influence such a prediction is infinite. We believe that any talk by investment professionals regarding the near term direction of the stock market is merely guesswork, and that your predictions would have as likely a chance of being accurate as would theirs. This is apparently not just an opinion we espouse, as a 20-year study conducted by Phillip Tetlock, a psychology professor from Berkeley University, has shown. Professor Tetlock selected two hundred and eighty-four people who made their living as experts, offering opinions on political and economic trends, and other topics. The conclusion of the study, which was developed into a book, was that the experts were no better than the average person in predicting future events. The study further revealed that the more famous the pundits, the less useful were their predictions. It is far easier, although by no means simple, to understand the underlying potential of individual companies. Thus, we devote our time to bottom-up company research and not to macroeconomic considerations. However, we are aware of several factors that might significantly affect the future investment climate. Our first concern pertains to peak oil, which is the concept that global oil demand will outstrip the world's ability to supply oil, and the effect that peak oil might have on the price per barrel, as well as the larger consequences to world economies. The concept of peak oil was first put forth in a paper by M. King Hubbert in 1956, in which he predicted that U.S. oil production would peak sometime between 1965 and 1970. The U.S. reached peak production in 1971, and has been in continual decline from that time. Since oil is a non-renewable form of energy, at some point, global peak production is inevitable, which is also true for other sources of non-renewable energy, such as natural gas. A minority of geologists believe that we have either already reached global peak oil production or will shortly. The concern to the public is not that there are no other alternative sources of energy, but rather, that they are not being sufficiently pursued because the 4 majority of the world still operates under the assumption that an abundant quantity of cheap oil will always be available. Unfortunately, this assumption was not true with regard to the United States nor will it hold true with the world at large. It took approximately 125 years for the world to consume the first trillion barrels of oil; it is estimated the next trillion will be consumed in only 30 years. A 5% dislocation in oil supply back in the early 1970s caused a 4-fold price increase for oil. The average price for a barrel of crude oil in 1970 was $3.39; in 1980 it was $37.42, an 11-fold increase over the average price of 1970. Recently, the Ukraine and Europe saw what could happen to natural gas prices when Russia stopped supplying the Ukraine with gas for a very brief period of time. In a recent editorial in the Financial Times, Martin Feldstein, professor of economics at Harvard University, proposed that America's robust economy over the last two years, which seems immune to rising oil prices, unlike past experiences, is the result of the household savings rate falling from 2.5% of after-tax income in the third quarter of 2003 to negative 1.8% by year-end 2005. He believes this decline in savings allowed Americans to continue to spend on non-oil goods and services even during a period of materially higher-priced oil. It is unlikely that such a decline in savings can go on indefinitely without some very serious negative consequences. With oil at close to $70 a barrel and premium gasoline at approximately $2.85 a gallon, the typical American does not appear to be modifying his habits. This means, in all probability, that oil is still being incorrectly priced relative to its supply. In economics, the study of how societies allocate resources, we are taught that if you wish to curb demand, you raise prices, or, if supply is insufficient, prices will rise to create a new equilibrium. Even though the price of oil has approximately doubled in the last two years, we have not yet experienced an "oil shock." However, should supply become insufficient by even minor amounts in percentage terms, an oil shock could rapidly develop. The prospects for such an event would be most unpleasant for investors and should be hedged against by having some exposure to oil companies. Our choice of the Canadian oil sands 5 companies in our Paradigm Fund was the result of their future earnings being discounted at a very high rate, such that we believe we would achieve a satisfactory return even if the world were to successfully navigate this serious supply condition. Our second concern is global political instability, particularly Iran's decision to resume its nuclear research program. If Iran continues down this path, the United States might have no other choice but to challenge its efforts. Our third concern is that equity valuations remain expensive based on historical metrics. The typical investor should expect lower future returns since an important stimulus, multiple expansion, is being undermined by the Federal Reserve's tightening policy. Thus, equity returns, we believe, for the foreseeable future, will be a function of dividend yields plus earnings growth. Notwithstanding these concerns, we believe that we have uncovered several unique investment opportunities that might perform well even if the overall stock market does not prosper in 2006. We are quite enthusiastic regarding the publicly-traded exchanges, such as the Chicago Mercantile Exchange (CME), Chicago Board of Trade (BOT), NYSE Holdings (which will be going public shortly) and NASDAQ Stock Market (NDAQ). Over the last seventy years, the world's central bankers have been keenly concerned with keeping demand robust, in contrast to prior periods, when the focus was on supply and building infrastructure. We believe the focus on demand stimulus has created a situation where global competition is intense, and the absolute level of interest rates is still quite low. As investors seek adequate investment returns, their response has been to trade more frequently. This has allowed the exchange operators to grow their earnings at very attractive rates. Further, modern portfolio theory, which is still being taught at most universities, encourages a continual trading of assets. We expect these trading trends to continue and own a variety of exchanges in several of the funds. Another significant opportunity to which we are exposed in both our Paradigm Fund and Small Cap Opportunities Fund is that of formerly financially distressed utility companies. Most of these 6 companies pursued diversification strategies into unregulated businesses that went awry with the collapse of the Western energy market and the demise of Enron. We believe the business operations of these companies will allow them to pay down a significant amount of debt over the next several years, thereby, creating significant equity. Further, the repeal of the Public Utility Holding Company Act sets into motion the possibility of increased merger activity within the utility industry. We remain very optimistic regarding the prospects for the underlying companies in our Funds. Of course, the Paradigm and Small Cap Opportunities Funds offer the most diversification potential for investors. However, we still encourage you to investigate our sector funds. We are well aware of the vast array of opportunities investors have before them; accordingly, we thank you for your confidence as we strive to deliver rewarding investment results. /s/ Peter B. Doyle Peter B. Doyle Chief Investment Strategist 7 DISCLOSURE THIS MATERIAL IS INTENDED TO BE REVIEWED IN CONJUNCTION WITH A CURRENT PROSPECTUS, WHICH INCLUDES ALL FEES AND EXPENSES THAT APPLY TO A CONTINUED INVESTMENT PROGRAM, AS WELL AS INFORMATION REGARDING THE RISK FACTORS, POLICIES AND OBJECTIVES OF THE FUNDS. READ IT CAREFULLY BEFORE INVESTING. MUTUAL FUND INVESTING INVOLVES RISK. PRINCIPAL LOSS IS POSSIBLE. BECAUSE THE FUNDS [OTHER THAN THE PARADIGM FUND, THE SMALL CAP OPPORTUNITIES FUND AND THE KINETICS GOVERNMENT MONEY MARKET FUND] INVEST IN A SINGLE INDUSTRY OR GEOGRAPHIC REGION, THEIR SHARES ARE SUBJECT TO A HIGHER DEGREE OF RISK THAN FUNDS WITH A HIGHER LEVEL OF DIVERSIFICATION. INTERNET AND BIOTECHNOLOGY STOCKS ARE SUBJECT TO A RATE OF CHANGE IN TECHNOLOGY, OBSOLESCENCE AND COMPETITION THAT IS GENERALLY HIGHER THAN THAT OF OTHER INDUSTRIES AND HAVE EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. BECAUSE SMALLER COMPANIES [FOR THE INTERNET EMERGING GROWTH FUND AND THE SMALL CAP OPPORTUNITIES FUND] OFTEN HAVE NARROWER MARKETS AND LIMITED FINANCIAL RESOURCES, THEY PRESENT MORE RISK THAN LARGER, MORE WELL ESTABLISHED, COMPANIES. AS NON-DIVERSIFIED [OTHER THAN THE KINETICS GOVERNMENT MONEY MARKET FUND] AND SINGLE INDUSTRY FUNDS, THE VALUE OF THEIR SHARES MAY FLUCTUATE MORE THAN SHARES INVESTED IN A BROADER RANGE OF INDUSTRIES AND COMPANIES. AN INVESTMENT IN THE KINETICS GOVERNMENT MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. UNLIKE OTHER INVESTMENT COMPANIES THAT DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, THE KINETICS MUTUAL FUNDS PURSUE THEIR INVESTMENT OBJECTIVES BY INVESTING ALL OF THEIR INVESTABLE ASSETS IN A CORRESPONDING PORTFOLIO SERIES OF KINETICS PORTFOLIOS TRUST. THE INFORMATION CONCERNING THE FUNDS INCLUDED IN THE SHAREHOLDER REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS ABOUT 8 THE FACTORS THAT MAY AFFECT THE PERFORMANCE OF THE FUNDS IN THE FUTURE. THESE STATEMENTS ARE BASED ON FUND MANAGEMENT'S PREDICTIONS AND EXPECTATIONS CONCERNING CERTAIN FUTURE EVENTS AND THEIR EXPECTED IMPACT ON THE FUNDS, SUCH AS PERFORMANCE OF THE ECONOMY AS A WHOLE AND OF SPECIFIC INDUSTRY SECTORS, CHANGES IN THE LEVELS OF INTEREST RATES, THE IMPACT OF DEVELOPING WORLD EVENTS, AND OTHER FACTORS THAT MAY INFLUENCE THE FUTURE PERFORMANCE OF THE FUNDS. MANAGEMENT BELIEVES THESE FORWARD-LOOKING STATEMENTS TO BE REASONABLE, ALTHOUGH THEY ARE INHERENTLY UNCERTAIN AND DIFFICULT TO PREDICT. ACTUAL EVENTS MAY CAUSE ADJUSTMENTS IN PORTFOLIO MANAGEMENT STRATEGIES FROM THOSE CURRENTLY EXPECTED TO BE EMPLOYED. DISTRIBUTOR: KINETICS FUNDS DISTRIBUTOR, INC. IS NOT AN AFFILIATE OF KINETICS MUTUAL FUNDS, INC. KINETICS FUNDS DISTRIBUTOR, INC. IS AN AFFILIATE OF KINETICS ASSET MANAGEMENT, INC., INVESTMENT ADVISER TO KINETICS MUTUAL FUNDS, INC. (C)JANUARY 1, 2006 -- KINETICS ASSET MANAGEMENT, INC. 9 HOW A $10,000 INVESTMENT HAS GROWN: The charts show the growth of a $10,000 investment in the Funds as compared to the performance of two representative market indices. The tables below the charts show the average annual total returns on an investment over various periods. Returns for periods greater than one year are average annual total returns. The annual returns assume the reinvestment of all dividends and distributions, however, the graph and table do not reflect 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 their original costs. S&P 500 INDEX -- The S&P 500 Index 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 S&P 500 is unmanaged and includes the reinvestment of dividends and does not reflect the payments of transaction costs and advisory fees associated with an investment in the Funds. The securities that comprise the S&P 500 may differ substantially from the securities in the Funds' portfolios. It is not possible to directly invest in an index. NASDAQ COMPOSITE INDEX -- The NASDAQ Composite Index is a broad- based capitalization-weighted index of all NASDAQ stocks. The NASDAQ Composite is unmanaged and does not include the reinvestment of dividends and does not reflect the payment of transaction costs or advisory fees associated with an investment in the Funds. The securities that comprise the NASDAQ Composite may differ substantially from the securities in the Funds' portfolios. It is not possible to directly invest in an index. 10 THE INTERNET FUND OCTOBER 21, 1996 -- DECEMBER 31, 2005 [GRAPH]
THE INTERNET FUND -- NO LOAD CLASS S&P 500 NASDAQ COMPOSITE ----------------------- ------- ---------------- 10/21/1996 10000 10000 10000 10/31/1996 11160 9941 9879 11/30/1996 9420 10692 10455 12/31/1996 9420 10480 10442 01/31/1997 9280 11135 11160 02/28/1997 8380 11222 10587 03/31/1997 7420 10761 9881 04/30/1997 7640 11403 10197 05/31/1997 8840 12098 11326 06/30/1997 8780 12640 11663 07/31/1997 9840 13645 12891 08/31/1997 9980 12881 12838 09/30/1997 11020 13587 13634 10/31/1997 10240 13133 12889 11/30/1997 10320 13741 12945 12/31/1997 10620 13977 12701 01/31/1998 11400 14131 13097 02/28/1998 12620 15150 14320 03/31/1998 13700 15926 14847 04/30/1998 15720 16087 15112 05/31/1998 13780 15810 14387 06/30/1998 19000 16452 15325 07/31/1998 19360 16277 15144 08/31/1998 13420 13924 12126 09/30/1998 17140 14816 13700 10/31/1998 18120 16021 14327 11/30/1998 26300 16992 15768 12/31/1998 31450 17971 17734 01/31/1999 47455 18723 20267 02/28/1999 45635 18141 18505 03/31/1999 60720 18866 19908 04/30/1999 69183 19597 20566 05/31/1999 61400 19134 19981 06/30/1999 67002 20196 21725 07/31/1999 57719 19566 21340 08/31/1999 55778 19469 22156 09/30/1999 59259 18935 22211 10/31/1999 64141 20133 23992 11/30/1999 75585 20543 26983 12/31/1999 99521 21752 32912 01/31/2000 97199 20660 31869 02/29/2000 108368 20268 37986 03/31/2000 107627 22251 36985 04/30/2000 78303 21582 31225 05/31/2000 67535 21139 27506 06/30/2000 71658 21660 32078 07/31/2000 69636 21322 30467 08/31/2000 71978 22646 34021 09/30/2000 65093 21450 29706 10/31/2000 60869 21360 27253 11/30/2000 50241 19676 21012 12/31/2000 48279 19772 19981 01/31/2001 53163 20473 22426 02/28/2001 48920 18607 17404 03/31/2001 44836 17428 14884 04/30/2001 48199 18782 17116 05/31/2001 48900 18908 17070 06/30/2001 49300 18448 17474 07/31/2001 47358 18266 16395 08/31/2001 44836 17123 14602 09/30/2001 39872 15740 12122 10/31/2001 39912 16040 13670 11/30/2001 42214 17271 15614 12/31/2001 43635 17422 15775 01/31/2002 42174 17168 15642 02/28/2002 39812 16837 14004 03/31/2002 41574 17470 14925 04/30/2002 40813 16411 13654 05/31/2002 40893 16290 13068 06/30/2002 35869 15129 11834 07/31/2002 32727 13950 10743 08/31/2002 32466 14042 10634 09/30/2002 30865 12516 9480 10/31/2002 32767 13617 10755 11/30/2002 34128 14419 11960 12/31/2002 33407 13572 10802 01/31/2003 33807 13216 10683 02/28/2003 32847 13018 10818 03/31/2003 34168 13144 10847 04/30/2003 36009 14227 11843 05/31/2003 38952 14976 12908 06/30/2003 42354 15167 13125 07/31/2003 43435 15435 14033 08/31/2003 43115 15736 14643 09/30/2003 43355 15569 14453 10/31/2003 45997 16450 15628 11/30/2003 45537 16594 15854 12/31/2003 46808 17465 16203 01/31/2004 48896 17785 16711 02/29/2004 46507 18032 16417 03/31/2004 45242 17760 16129 04/30/2004 44278 17481 15530 05/31/2004 44920 17721 16069 06/30/2004 45563 18066 16562 07/31/2004 43876 17468 15265 08/31/2004 43876 17539 14866 09/30/2004 45362 17729 15342 10/31/2004 46607 17999 15974 11/30/2004 48796 18728 16959 12/31/2004 51516 19365 17595 01/31/2005 48521 18893 16681 02/28/2005 47503 19291 16594 03/31/2005 47768 18949 16170 04/30/2005 46708 18590 15542 05/31/2005 47931 19181 16728 06/30/2005 47870 19208 16637 07/31/2005 48908 19923 17671 08/31/2005 49438 19741 17406 09/30/2005 49682 19901 17403 10/31/2005 48868 19569 17149 11/30/2005 50395 20309 18059 12/31/2005 50647 20316 17836
ENDED 12/31/05 --------------------------------------------------------------- ADVISOR ADVISOR NO LOAD CLASS A CLASS A NASDAQ CLASS (NO LOAD) (LOAD ADJUSTED)(1) S&P 500 COMPOSITE - ----------------------------------------------------------------------------------------------- One Year -1.69% -1.55% -7.21% 4.91% 1.37% - ----------------------------------------------------------------------------------------------- Five Years 0.96% N/A N/A 0.54% -2.25% - ----------------------------------------------------------------------------------------------- Since Inception No Load Class (10/21/96) 19.30% N/A N/A 8.01% 6.50% - ----------------------------------------------------------------------------------------------- Since Inception Advisor Class A (4/26/01) N/A 1.13% -0.14% 1.95% 1.73% - -----------------------------------------------------------------------------------------------
(1) Reflects front-end sales charge of 5.75%. Returns for periods greater than one year are average annual total returns. 11 THE INTERNET EMERGING GROWTH FUND DECEMBER 31, 1999 -- DECEMBER 31, 2005 [GRAPH]
THE INTERNET EMERGING GROWTH FUND S&P 500 NASDAQ COMPOSITE --------------------- ------- ---------------- 12/31/1999 10000 10000 10000 01/31/2000 10010 9498 9683 02/29/2000 12050 9318 11542 03/31/2000 10770 10229 11237 04/30/2000 7640 9922 9487 05/31/2000 6470 9718 8357 06/30/2000 7060 9958 9746 07/31/2000 6520 9802 9257 08/31/2000 6700 10411 10337 09/30/2000 5960 9861 9026 10/31/2000 5260 9819 8281 11/30/2000 4100 9045 6384 12/31/2000 3690 9090 6071 01/31/2001 4490 9412 6814 02/28/2001 4060 8554 5288 03/31/2001 3740 8012 4522 04/30/2001 3720 8635 5200 05/31/2001 3940 8692 5186 06/30/2001 4030 8481 5309 07/31/2001 4060 8397 4982 08/31/2001 3920 7872 4437 09/30/2001 3700 7236 3683 10/31/2001 3850 7374 4154 11/30/2001 4020 7940 4744 12/31/2001 4300 8009 4793 01/31/2002 4120 7892 4753 02/28/2002 3820 7740 4255 03/31/2002 4000 8031 4535 04/30/2002 4050 7544 4149 05/31/2002 3880 7489 3971 06/30/2002 3540 6955 3596 07/31/2002 3180 6413 3264 08/31/2002 3220 6455 3231 09/30/2002 3080 5754 2880 10/31/2002 3150 6260 3268 11/30/2002 3310 6629 3634 12/31/2002 3240 6239 3282 01/31/2003 3210 6076 3246 02/28/2003 3150 5985 3287 03/31/2003 3190 6043 3296 04/30/2003 3310 6540 3598 05/31/2003 3600 6885 3922 06/30/2003 3730 6973 3988 07/31/2003 3820 7096 4264 08/31/2003 4050 7234 4449 09/30/2003 4300 7157 4391 10/31/2003 4410 7562 4748 11/30/2003 4470 7629 4817 12/31/2003 4327 8029 4923 01/31/2004 4600 8176 5077 02/29/2004 4236 8290 4988 03/31/2004 4247 8165 4901 04/30/2004 4125 8037 4719 05/31/2004 4196 8147 4882 06/30/2004 4327 8305 5032 07/31/2004 4065 8030 4638 08/31/2004 4044 8063 4517 09/30/2004 4125 8150 4661 10/31/2004 4206 8275 4853 11/30/2004 4489 8610 5153 12/31/2004 4659 8902 5346 01/31/2005 4545 8685 5068 02/28/2005 4576 8868 5042 03/31/2005 4483 8711 4913 04/30/2005 4297 8546 4722 05/31/2005 4431 8818 5082 06/30/2005 4452 8830 5055 07/31/2005 4659 9159 5369 08/31/2005 4732 9075 5289 09/30/2005 4763 9149 5288 10/31/2005 4639 8996 5210 11/30/2005 4690 9336 5487 12/31/2005 4783 9340 5419
ENDED 12/31/05 ----------------------------- NASDAQ FUND S&P 500 COMPOSITE - -------------------------------------------------------------------------------------- One Year 2.65% 4.91% 1.37% - -------------------------------------------------------------------------------------- Five Years 5.33% 0.54% -2.25% - -------------------------------------------------------------------------------------- Since Inception (12/31/99) -11.57% -1.13% -9.71% - --------------------------------------------------------------------------------------
Returns for periods greater than one year are average annual total returns. 12 THE PARADIGM FUND DECEMBER 31, 1999 -- DECEMBER 31, 2005 [GRAPH]
THE PARADIGM FUND - NO LOAD CLASS S&P 500 NASDAQ COMPOSITE ---------------------- ------- ---------------- 12/31/1999 10000 10000 10000 01/31/2000 9660 9498 9683 02/29/2000 9800 9318 11542 03/31/2000 10200 10229 11237 04/30/2000 8980 9922 9487 05/31/2000 8790 9718 8357 06/30/2000 8920 9958 9746 07/31/2000 8940 9802 9257 08/31/2000 9190 10411 10337 09/30/2000 9370 9861 9026 10/31/2000 9630 9819 8281 11/30/2000 9600 9045 6384 12/31/2000 10400 9090 6071 01/31/2001 10540 9412 6814 02/28/2001 10530 8554 5288 03/31/2001 10200 8012 4522 04/30/2001 10360 8635 5200 05/31/2001 10740 8692 5186 06/30/2001 10910 8481 5309 07/31/2001 10900 8397 4982 08/31/2001 10780 7872 4437 09/30/2001 10150 7236 3683 10/31/2001 10220 7374 4154 11/30/2001 10340 7940 4744 12/31/2001 10610 8009 4793 01/31/2002 10610 7892 4753 02/28/2002 10860 7740 4255 03/31/2002 11000 8031 4535 04/30/2002 11080 7544 4149 05/31/2002 11130 7489 3971 06/30/2002 10670 6955 3596 07/31/2002 10130 6413 3264 08/31/2002 10190 6455 3231 09/30/2002 9730 5754 2880 10/31/2002 9810 6260 3268 11/30/2002 9980 6629 3634 12/31/2002 10120 6239 3282 01/31/2003 10070 6076 3246 02/28/2003 9790 5985 3287 03/31/2003 10130 6043 3296 04/30/2003 11180 6540 3598 05/31/2003 12060 6885 3922 06/30/2003 12220 6973 3988 07/31/2003 12040 7096 4264 08/31/2003 12780 7234 4449 09/30/2003 12870 7157 4391 10/31/2003 13530 7562 4748 11/30/2003 13920 7629 4817 12/31/2003 14954 8029 4923 01/31/2004 14904 8176 5077 02/29/2004 15185 8290 4988 03/31/2004 15215 8165 4901 04/30/2004 14824 8037 4719 05/31/2004 15095 8147 4882 06/30/2004 15266 8305 5032 07/31/2004 15195 8030 4638 08/31/2004 15256 8063 4517 09/30/2004 15868 8150 4661 10/31/2004 16209 8275 4853 11/30/2004 17454 8610 5153 12/31/2004 18084 8902 5346 01/31/2005 17414 8685 5068 02/28/2005 18321 8868 5042 03/31/2005 18321 8711 4913 04/30/2005 18135 8546 4722 05/31/2005 18723 8818 5082 06/30/2005 19455 8830 5055 07/31/2005 20445 9159 5369 08/31/2005 20713 9075 5289 09/30/2005 21362 9149 5288 10/31/2005 20270 8996 5210 11/30/2005 20569 9336 5487 12/31/2005 20997 9340 5419
ENDED 12/31/05 ---------------------------------------------------------------------------------------- ADVISOR ADVISOR NO LOAD CLASS A CLASS A ADVISOR INSTITUTIONAL NASDAQ CLASS (NO LOAD) (LOAD ADJUSTED)(1) CLASS C CLASS S&P 500 COMPOSITE - --------------------------------------------------------------------------------------------------------------- One Year 16.11% 15.54% 8.91% 14.96% N/A 4.91% 1.37% - --------------------------------------------------------------------------------------------------------------- Five Years 15.09% N/A N/A N/A N/A 0.54% -2.25% - --------------------------------------------------------------------------------------------------------------- Since Inception No Load Class (12/31/99) 13.16% N/A N/A N/A N/A -1.13% -9.71% - --------------------------------------------------------------------------------------------------------------- Since Inception Advisor Class A (4/26/01) N/A 15.79% 14.32% N/A N/A 1.95% 1.73% - --------------------------------------------------------------------------------------------------------------- Since Inception Advisor Class C (06/28/02) N/A N/A N/A 20.29% N/A 8.76% 12.40% - --------------------------------------------------------------------------------------------------------------- Since Inception Institutional Class (05/27/05) N/A N/A N/A N/A 12.35%(2) 5.27%(2) 6.24%(2) - ---------------------------------------------------------------------------------------------------------------
(1) Reflects front-end sales charge of 5.75%. (2) Not annualized. Returns for periods greater than one year are average annual total returns. 13 THE MEDICAL FUND SEPTEMBER 30, 1999 -- DECEMBER 31, 2005 [GRAPH]
THE MEDICAL FUND - NO LOAD CLASS S&P 500 NASDAQ COMPOSITE --------------------- ------- ---------------- 09/30/1999 10000 10000 10000 10/31/1999 10490 10633 10802 11/30/1999 11390 10849 12148 12/31/1999 13360 11488 14818 01/31/2000 15220 10911 14349 02/29/2000 18690 10704 17103 03/31/2000 16910 11751 16652 04/30/2000 15970 11398 14058 05/31/2000 16240 11164 12384 06/30/2000 19360 11439 14442 07/31/2000 18640 11260 13717 08/31/2000 20470 11960 15317 09/30/2000 21130 11328 13374 10/31/2000 20940 11281 12270 11/30/2000 20330 10391 9460 12/31/2000 20980 10442 8996 01/31/2001 19860 10812 10097 02/28/2001 19470 9827 7836 03/31/2001 18100 9204 6701 04/30/2001 18620 9919 7706 05/31/2001 19170 9986 7685 06/30/2001 19140 9743 7867 07/31/2001 18640 9647 7382 08/31/2001 18280 9043 6574 09/30/2001 17520 8313 5458 10/31/2001 17990 8471 6155 11/30/2001 18520 9121 7030 12/31/2001 18091 9201 7102 01/31/2002 16799 9067 7043 02/28/2002 16478 8892 6305 03/31/2002 16518 9226 6720 04/30/2002 15066 8667 6148 05/31/2002 14455 8603 5884 06/30/2002 13273 7990 5328 07/31/2002 12962 7367 4837 08/31/2002 12832 7416 4788 09/30/2002 12010 6610 4268 10/31/2002 12782 7192 4842 11/30/2002 13213 7615 5385 12/31/2002 12819 7167 4863 01/31/2003 12909 6980 4810 02/28/2003 12496 6875 4871 03/31/2003 12960 6942 4884 04/30/2003 13897 7514 5332 05/31/2003 15066 7909 5811 06/30/2003 15126 8010 5909 07/31/2003 15257 8152 6318 08/31/2003 14784 8310 6593 09/30/2003 15076 8222 6507 10/31/2003 15157 8687 7036 11/30/2003 15278 8764 7138 12/31/2003 15791 9223 7295 01/31/2004 16084 9393 7524 02/29/2004 16305 9523 7391 03/31/2004 15802 9380 7262 04/30/2004 16003 9232 6992 05/31/2004 15973 9359 7235 06/30/2004 15912 9541 7457 07/31/2004 15378 9225 6873 08/31/2004 15419 9263 6693 09/30/2004 15721 9363 6907 10/31/2004 15469 9506 7192 11/30/2004 15812 9891 7635 12/31/2004 16890 10227 7922 01/31/2005 16074 9978 7510 02/28/2005 16013 10188 7471 03/31/2005 15449 10007 7280 04/30/2005 15660 9818 6998 05/31/2005 15842 10130 7531 06/30/2005 15610 10144 7490 07/31/2005 16315 10522 7956 08/31/2005 16295 10426 7837 09/30/2005 16729 10510 7835 10/31/2005 16457 10335 7721 11/30/2005 16376 10726 8131 12/31/2005 16769 10729 8031
ENDED 12/31/05 -------------------------------------------------------------- ADVISOR ADVISOR NO LOAD CLASS A CLASS A NASDAQ CLASS (NO LOAD) (LOAD ADJUSTED)(1) S&P 500 COMPOSITE - --------------------------------------------------------------------------------------------- One Year -0.72% -0.91% -6.63% 4.91% 1.37% - --------------------------------------------------------------------------------------------- Five Years -4.38% N/A N/A 0.54% -2.25% - --------------------------------------------------------------------------------------------- Since Inception No Load Class (9/30/99) 8.62% N/A N/A 1.13% -3.45% - --------------------------------------------------------------------------------------------- Since Inception Advisor Class A (4/26/01) N/A -2.16% -3.39% 1.95% 1.73% - ---------------------------------------------------------------------------------------------
(1) Reflects front-end sales charge of 5.75%. Returns for periods greater than one year are average annual total returns. 14 THE SMALL CAP OPPORTUNITIES FUND MARCH 20, 2000 -- DECEMBER 31, 2005 [GRAPH]
THE SMALL CAP OPPORTUNITIES FUND - NO LOAD CLASS S&P 500 NASDAQ COMPOSITE ----------------------- ------- ---------------- 03/20/2000 10000 10000 10000 03/31/2000 9900 10290 9919 04/30/2000 9740 9980 8375 05/31/2000 9500 9775 7377 06/30/2000 10210 10016 8603 07/31/2000 11140 9860 8171 08/31/2000 12050 10472 9124 09/30/2000 10970 9919 7967 10/31/2000 10580 9877 7309 11/30/2000 9710 9099 5635 12/31/2000 11100 9143 5359 01/31/2001 12580 9468 6015 02/28/2001 12310 8604 4668 03/31/2001 12180 8059 3992 04/30/2001 12790 8686 4591 05/31/2001 13370 8744 4578 06/30/2001 13940 8531 4687 07/31/2001 13890 8447 4397 08/31/2001 13650 7918 3916 09/30/2001 12610 7279 3251 10/31/2001 13440 7418 3666 11/30/2001 14280 7987 4188 12/31/2001 14500 8057 4231 01/31/2002 14330 7939 4195 02/28/2002 13810 7786 3756 03/31/2002 14610 8079 4003 04/30/2002 14430 7589 3662 05/31/2002 14240 7533 3505 06/30/2002 13680 6996 3174 07/31/2002 11630 6451 2881 08/31/2002 11910 6493 2852 09/30/2002 10730 5788 2542 10/31/2002 9940 6297 2884 11/30/2002 10140 6668 3208 12/31/2002 10110 6276 2897 01/31/2003 10301 6112 2865 02/28/2003 10281 6020 2901 03/31/2003 10915 6078 2909 04/30/2003 11590 6579 3176 05/31/2003 12778 6926 3462 06/30/2003 12738 7014 3520 07/31/2003 12949 7138 3764 08/31/2003 13876 7277 3927 09/30/2003 14581 7200 3876 10/31/2003 15688 7607 4191 11/30/2003 16242 7674 4252 12/31/2003 16834 8076 4346 01/31/2004 17108 8224 4482 02/29/2004 16803 8339 4403 03/31/2004 16681 8213 4326 04/30/2004 16284 8084 4165 05/31/2004 16437 8195 4310 06/30/2004 17352 8354 4442 07/31/2004 16712 8078 4094 08/31/2004 17047 8111 3987 09/30/2004 17230 8198 4115 10/31/2004 17688 8324 4284 11/30/2004 18919 8660 4548 12/31/2004 19594 8955 4719 01/31/2005 18881 8737 4474 02/28/2005 19174 8921 4451 03/31/2005 18975 8763 4337 04/30/2005 18703 8596 4168 05/31/2005 19615 8870 4486 06/30/2005 20233 8883 4462 07/31/2005 21743 9213 4739 08/31/2005 21932 9129 4668 09/30/2005 22456 9203 4667 10/31/2005 21544 9049 4599 11/30/2005 21890 9392 4843 12/31/2005 22174 9395 4784
ENDED 12/31/05 ------------------------------------------------------------------------------ ADVISOR ADVISOR NO LOAD CLASS A CLASS A INSTITUTIONAL NASDAQ CLASS (NO LOAD) (LOAD ADJUSTED)(1) CLASS S&P 500 COMPOSITE - ---------------------------------------------------------------------------------------------------------------- One Year 13.17% 12.83% 6.33% N/A 4.91% 1.37% - ---------------------------------------------------------------------------------------------------------------- Five Years 14.84% N/A N/A N/A 0.54% -2.25% - ---------------------------------------------------------------------------------------------------------------- Since Inception No Load Class (3/20/00) 14.76% 10.95% N/A N/A -1.07% -11.97% - ---------------------------------------------------------------------------------------------------------------- Since Inception Advisor Class A (12/31/01) N/A N/A 9.33% N/A 3.92% 3.12% - ---------------------------------------------------------------------------------------------------------------- Since Inception Institutional Class (8/12/05) N/A N/A N/A 3.23%(2) 2.20%(2) 2.24%(2) - ----------------------------------------------------------------------------------------------------------------
(1) Reflects front-end sales charge of 5.75%. (2) Not annualized. Returns for periods greater than one year are average annual total returns. 15 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS EXPENSE EXAMPLE December 31, 2005 Shareholders incur two type of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvestments of dividends or other distributions made by the Fund, redemption fees, and exchange fees, and (2), ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses. This example is intended to help investors understand the ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested on July 1, 2005 and held for the entire period from July 1, 2005 to December 31, 2005. ACTUAL EXPENSES The first line of the table below provides information about actual account values and actual expenses. Unlike other mutual funds that directly acquire and manage their own portfolio securities, each Feeder Fund invests all of its investable assets in a corresponding Master Portfolio, a separately registered investment company. The Master Portfolio, in turn, invests in securities. With this type of organization, expenses can accrue specifically to the Master Portfolio or the Feeder Fund or both. The Adviser for the Master Portfolios has directed a certain amount of the Master Portfolio's trades to brokers believed to provide the best execution and, as a result, the Master Portfolios have generated direct brokerage credits to reduce certain service provider fees. Each Feeder Fund records its proportionate share of the Master Portfolio's expenses, including directed brokerage credits, on a daily basis. Any expense reductions includes Feeder Fund-specific expenses as well as the expenses allocated from the Master Portfolio. The Feeder Funds will charge shareholder fees for outgoing wire transfers, returned checks, and exchanges executed by telephone between the Feeder Fund and any other series of Kinetics Mutual Funds, Inc. The Feeder Fund's transfer agent charges a $5.00 transaction fee to shareholder accounts for telephone exchanges between any two series of Kinetics Mutual Funds, Inc. The Feeder Fund's transfer agent does not charge a transaction fee for written exchange requests. IRA accounts are assessed a $15.00 annual fee. Finally, as a disincentive to market-timing transactions, the Feeder Funds will assess a 2.00% fee on the redemption or exchange of Fund shares held for less than one month. These fees will be paid to the Feeder Funds to help offset transaction costs. The Feeder Funds reserve the right to waive the redemption 16 fee, subject to their sole discretion, in instances deemed not to be disadvantageous to the Feeder Funds or shareholders. You may use the information provided in the first line, together with the amounts you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Feeder Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which are not the Feeder Funds' actual returns. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses one paid for the period. You may use this information to compare the ongoing costs of investing in the Feeder Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight one's ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help one determine the relative total costs of owning different funds. In addition, if these transactional costs were included, one's costs would have been higher. 17 EXPENSE EXAMPLE
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID VALUE VALUE DURING PERIOD* (7/1/05) (12/31/05) (7/1/05 TO 12/31/05) ----------------- -------------- -------------------- THE INTERNET FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,058.00 $12.19 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,058.00 $12.19 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,013.36 $11.93 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,013.36 $11.93 Advisor Class A Actual -- before expense reimbursement............... $1,000.00 $1,060.60 $13.50 Advisor Class A Actual -- after expense reimbursement............... $1,000.00 $1,060.60 $13.50 Advisor Class A Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,012.10 $13.19 Advisor Class A Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,012.10 $13.19 THE INTERNET EMERGING GROWTH FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,074.30 $16.34 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,074.30 $13.98 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,009.45 $15.83 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,011.73 $13.55 THE PARADIGM FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,079.30 $ 9.92 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,079.30 $ 8.88 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,015.67 $ 9.61 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,016.67 $ 8.61 Advisor Class A Actual -- before expense reimbursement............... $1,000.00 $1,078.60 $11.22 Advisor Class A Actual -- after expense reimbursement............... $1,000.00 $1,078.60 $10.18 Advisor Class A Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,014.41 $10.88 Advisor Class A Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,015.41 $ 9.87 Advisor Class C Actual -- before expense reimbursement............... $1,000.00 $1,075.30 $13.82 Advisor Class C Actual -- after expense reimbursement............... $1,000.00 $1,075.30 $12.78 Advisor Class C Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,011.89 $13.40
18
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID VALUE VALUE DURING PERIOD* (7/1/05) (12/31/05) (7/1/05 TO 12/31/05) ----------------- -------------- -------------------- Advisor Class C Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,012.89 $12.40 Institutional Class Actual -- before expense reimbursement............... $1,000.00 $1,079.50 $ 8.87 Institutional Class Actual -- after expense reimbursement............... $1,000.00 $1,079.50 $ 7.83 Institutional Class Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,016.67 $ 8.60 Institutional Class Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,017.68 $ 7.59 THE MEDICAL FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,074.20 $12.23 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,074.20 $12.42 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,013.41 $11.87 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,013.23 $12.06 Advisor Class A Actual -- before expense reimbursement............... $1,000.00 $1,072.90 $13.53 Advisor Class A Actual -- after expense reimbursement............... $1,000.00 $1,072.90 $13.72 Advisor Class A Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,012.15 $13.14 Advisor Class A Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,011.97 $13.32 THE SMALL CAP OPPORTUNITIES FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,095.90 $ 9.59 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,095.90 $ 9.40 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,016.06 $ 9.22 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,016.23 $ 9.05 Advisor Class A Actual -- before expense reimbursement............... $1,000.00 $1,093.70 $10.90 Advisor Class A Actual -- after expense reimbursement............... $1,000.00 $1,093.70 $10.71 Advisor Class A Hypothetical (5% return before expenses) -- before expense reimbursement............... $1,000.00 $1,014.80 $10.49 Advisor Class A Hypothetical (5% return before expenses) -- after expense reimbursement............... $1,000.00 $1,014.97 $10.31 Institutional Class Actual -- before expense reimbursement**............. $1,000.00 $1,032.30 $ 6.34 Institutional Class Actual -- after expense reimbursement**............. $1,000.00 $1,032.30 $ 6.20
19
BEGINNING ACCOUNT ENDING ACCOUNT EXPENSES PAID VALUE VALUE DURING PERIOD* (7/1/05) (12/31/05) (7/1/05 TO 12/31/05) ----------------- -------------- -------------------- Institutional Class Hypothetical (5% return before expenses) -- before expense reimbursement**............. $1,000.00 $1,013.08 $ 6.28 Institutional Class Hypothetical (5% return before expenses) -- after expense reimbursement**............. $1,000.00 $1,013.21 $ 6.14 THE KINETICS GOVERNMENT MONEY MARKET FUND No Load Class Actual -- before expense reimbursement....................... $1,000.00 $1,012.90 $19.21 No Load Class Actual -- after expense reimbursement....................... $1,000.00 $1,012.90 $ 4.88 No Load Class Hypothetical (5% return before expenses) -- before expense reimbursement....................... $1,000.00 $1,006.12 $19.15 No Load Class Hypothetical (5% return before expenses) -- after expense reimbursement....................... $1,000.00 $1,020.35 $ 4.90
- ------------------ Note: Each Feeder Fund records its proportionate share of the respective Master Portfolio's expenses, including directed brokerage credits, on a daily basis. Any expense reductions includes Feeder Fund-specific expenses as well as the expenses allocated for the Master Portfolio. * Expenses are equal to the Fund's annualized expense ratio before expense reimbursement and after expense reimbursement respectively of 2.35% and 2.35% for The Internet Fund No Load Class, 2.60% and 2.60% for The Internet Fund Advisor Class A, 3.12% and 2.67% for The Internet Emerging Growth Fund, 1.90% and 1.70% for The Paradigm Fund No Load Class, 2.15% and 1.95% for The Paradigm Fund Advisor Class A, 2.65% and 2.45% for The Paradigm Fund Advisor Class C, 1.70% and 1.50% for The Paradigm Fund Institutional Class, 2.34% and 2.38% for The Medical Fund No Load Class, 2.59% and 2.63% for The Medical Fund Advisor Class A, 1.89% and 1.85% for The Small Cap Opportunities Fund No Load Class, 2.14% and 2.10% for The Small Cap Opportunities Fund Advisor Class A, and 3.79% and 0.96% The Kinetics Government Money Market Fund, multiplied by the average account value over the period, multiplied by 184/365. ** Expenses paid during period 8/12/05 -- 12/31/05 and are equal to the Fund's annualized expense ratio before expense reimbursement and after expense reimbursement of 1.69% and 1.65% respectively for The Small Cap Fund Institutional Class, multiplied by the average account value over the period, multiplied by 141/365 (to reflect the inception date to the end of the semi-annual period). 20 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES December 31, 2005
THE INTERNET THE INTERNET EMERGING GROWTH FUND FUND - ---------------------------------------------------------------------------------- ASSETS: Investments in the Master Portfolios, at value*....................................... $ 148,790,301 $ 3,890,360 Receivable from Adviser........................ -- 2,225 Receivable for Master Portfolio interest sold......................................... 508,421 11,974 Receivable for Fund shares sold................ 17,689 2,600 Prepaid expenses and other assets.............. 6,507 10,679 ------------- ------------ Total assets................................. 149,322,918 3,917,838 ------------- ------------ LIABILITIES: Payable to shareholders........................ 63,174 7,118 Payable to Directors and Officers.............. 4,904 131 Payable for Fund shares repurchased............ 462,936 7,456 Payable for service fees....................... 32,559 837 Payable for distribution fees.................. 2,293 -- Accrued expenses and other liabilities......... 196,455 6,664 ------------- ------------ Total liabilities............................ 762,321 22,206 ------------- ------------ Net assets................................... $ 148,560,597 $ 3,895,632 ============= ============ NET ASSETS CONSIST OF: Paid in capital................................ $ 324,597,307 $ 14,782,894 Accumulated net investment loss................ (2,242,506) (66,901) Accumulated net realized loss on investments, options and written option contracts......... (185,254,583) (11,511,611) Net unrealized appreciation on: Investments.................................. 11,456,394 687,377 Written option contracts..................... 3,985 3,873 ------------- ------------ Net assets................................... $ 148,560,597 $ 3,895,632 ============= ============ CALCULATION OF NET ASSET VALUE PER SHARE -- NO LOAD CLASS: Net assets..................................... $ 148,260,435 $ 3,895,632 Shares outstanding............................. 6,011,696 880,080 Net asset value per share (offering and redemption price)............................ $ 24.66 $ 4.43 ============= ============ CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets..................................... $ 300,162 Shares outstanding............................. 12,301 Net asset value per share...................... $ 24.40 ============= Offering price per share ($24.40 divided by .9425)....................................... $ 25.89 =============
- ------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Feeder Funds' financial statements. See Notes to the Financial Statements. 21 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES -- (CONTINUED) December 31, 2005
THE PARADIGM THE MEDICAL FUND FUND - ---------------------------------------------------------------------------------------- ASSETS: Investments in the Master Portfolios, at value*........... $529,194,811 $14,525,840 Receivable from Adviser................................... 128,700 -- Receivable for Master Portfolio interest sold............. -- 23,938 Receivable for Fund shares sold........................... 5,041,361 13,174 Prepaid expenses and other assets......................... 30,033 7,880 ------------ ----------- Total assets............................................ 534,394,905 14,570,832 ------------ ----------- LIABILITIES: Payable for Master Portfolio interest purchased........... 3,855,459 -- Payable to shareholders................................... 60,631 -- Payable for Advisor....................................... -- 9,478 Payable to Directors and Officers......................... 15,531 508 Payable for Fund shares repurchased....................... 1,125,271 37,112 Payable for service fees.................................. 110,948 3,126 Payable for distribution fees............................. 35,919 110 Accrued expenses and other liabilities.................... 221,756 19,015 ------------ ----------- Total liabilities....................................... 5,425,515 69,349 ------------ ----------- Net assets.............................................. $528,969,390 $14,501,483 ============ =========== NET ASSETS CONSIST OF: Paid in capital........................................... $467,345,340 $16,348,850 Accumulated net investment loss........................... (1,563,028) -- Accumulated net realized loss on investments, options and written option contracts................................ (385,959) (127,962) Net unrealized appreciation (depreciation) on: Investments............................................. 63,573,037 (1,719,405) ------------ ----------- Net assets.............................................. $528,969,390 $14,501,483 ============ =========== CALCULATION OF NET ASSET VALUE PER SHARE -- NO LOAD CLASS: Net assets................................................ $418,913,556 $13,942,611 Shares outstanding........................................ 20,600,641 837,717 Net asset value per share (offering and redemption price).................................................. $ 20.33 $ 16.64 ============ =========== CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets................................................ $ 60,420,852 $ 558,873 Shares outstanding........................................ 3,009,704 34,205 Net asset value per share................................. $ 20.08 $ 16.34 ============ =========== Offering price per share ($20.08 divided by .9425 and $16.34 divided by .9425, respectively).................. $ 21.31 $ 17.34 ============ ===========
See Notes to the Financial Statements. 22 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES -- (CONTINUED) December 31, 2005
THE PARADIGM THE MEDICAL FUND FUND - ---------------------------------------------------------------------------------------- CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS C: Net assets................................................ $ 38,739,845 Shares outstanding........................................ 1,960,156 Net asset value per share (offering and redemption price).................................................. $ 19.76 ============ CALCULATION OF NET ASSET VALUE PER SHARE -- INSTITUTIONAL CLASS: Net assets................................................ $ 10,895,137 Shares outstanding........................................ 536,477 Net asset value per share (offering and redemption price).................................................. $ 20.31 ============
- ------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Feeder Funds' financial statements. See Notes to the Financial Statements. 23 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES -- (CONTINUED) December 31, 2005
THE SMALL THE KINETICS CAP GOVERNMENT OPPORTUNITIES MONEY FUND MARKET FUND - ------------------------------------------------------------------------------------------ ASSETS: Investments in the Master Portfolios, at value*............ $128,814,080 $1,045,299 Receivable from Adviser.................................... 8,285 3,755 Receivable for Fund shares sold............................ 968,686 45 Prepaid expenses and other assets.......................... 13,105 4,938 ------------ ---------- Total assets............................................. 129,804,156 1,054,037 ------------ ---------- LIABILITIES: Payable for Master Portfolio interest purchased............ 847,770 15 Payable to shareholders.................................... 8,955 30 Payable to Directors and Officers.......................... 3,509 17 Payable for Fund shares repurchased........................ 111,961 -- Payable for service fees................................... 15,654 226 Payable for distribution fees.............................. 1,026 -- Accrued expenses and other liabilities..................... 45,299 1,692 ------------ ---------- Total liabilities........................................ 1,034,174 1,980 ------------ ---------- Net assets............................................... $128,769,982 $1,052,057 ============ ========== NET ASSETS CONSIST OF: Paid in capital............................................ $110,846,399 $1,052,057 Accumulated net investment income.......................... 162,155 -- Accumulated net realized loss on investments, options and written option contracts................................. (1,265,588) -- Net unrealized appreciation on: Investments.............................................. 19,027,016 -- ------------ ---------- Net assets............................................... $128,769,982 $1,052,057 ============ ========== CALCULATION OF NET ASSET VALUE PER SHARE -- NO LOAD CLASS: Net assets................................................. $ 55,979,002 $1,052,057 Shares outstanding......................................... 2,663,043 1,052,057 Net asset value per share (offering and redemption price)................................................... $ 21.02 $ 1.00 ============ ========== CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets................................................. $ 5,204,742 Shares outstanding......................................... 249,096 Net asset value per share.................................. $ 20.89 ============ Offering price per share ($20.89 divided by .9425)......... $ 22.16 ============ CALCULATION OF NET ASSET VALUE PER SHARE -- INSTITUTIONAL CLASS: Net Assets................................................. $ 67,586,238 Shares outstanding......................................... 3,218,641 Net asset value per share (offering and redemption price)................................................... $ 21.00 ============
- ------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Feeder Funds' financial statements. See Notes to the Financial Statements. 24 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS For the Year Ended December 31, 2005
THE INTERNET THE INTERNET EMERGING FUND GROWTH FUND - ----------------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 2,742,496 $169,189 Interest.................................................. 1,779,187 70,866 Income from securities lending............................ 163,277 3,598 Expenses only from Master Portfolio++..................... (2,416,388) (69,555) ----------- -------- Net investment income from Master Portfolio........... 2,268,572 174,098 ----------- -------- EXPENSES: Distribution fees -- Advisor Class A...................... 745 -- Shareholder servicing fees and expenses................... 1,064,019 33,275 Reports to shareholders................................... 185,858 6,780 Administration fees....................................... 83,918 2,006 Professional fees......................................... 79,145 1,148 Directors' and Officers' fees and expenses................ 28,068 551 Registration fees......................................... 35,374 16,735 Fund accounting fees...................................... 7,738 -- Other expenses............................................ 20,399 365 ----------- -------- Total expenses........................................ 1,505,264 60,860 Less, expense reimbursement............................... -- (21,647) ----------- -------- Net expenses.......................................... 1,505,264 39,213 ----------- -------- Net investment income................................. 763,308 134,885 ----------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized gain (loss) on: Investments and foreign currency...................... (7,612,128) (20,833) Written option contracts expired or closed............ 309,754 -- Net change in unrealized appreciation (depreciation) of: Investments and foreign currency...................... 1,680,380 (51,506) Written option contracts.............................. (297,208) 4,432 ----------- -------- Net loss on investments............................... (5,919,202) (67,907) ----------- -------- Net decrease (increase) in net assets resulting from operations.......................................... $(5,155,894) $ 66,978 =========== ======== + Net of Foreign Taxes Withheld of: $ 20,086 $ 492 =========== ======== ++ Net of expense reduction of: $ 6,529 $ 605 =========== ========
See Notes to the Financial Statements. 25 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS -- (CONTINUED) For the Year Ended December 31, 2005
THE PARADIGM THE MEDICAL FUND FUND - ---------------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 3,104,513 $ 217,042 Interest.................................................. 1,327,061 2,114 Income from securities lending............................ 21,584 2,907 Expenses only from Master Portfolio++..................... (4,091,095) (246,855) ----------- ----------- Net investment income (loss) from Master Portfolio.... 362,063 (24,792) ----------- ----------- EXPENSES: Distribution fees -- Advisor Class A...................... 99,367 1,449 Distribution fees -- Advisor Class C...................... 161,371 -- Shareholder servicing fees and expenses................... 1,041,227 101,703 Shareholder servicing fees -- Institutional Class......... 9,150 -- Reports to shareholders................................... 109,312 16,346 Administration fees....................................... 145,270 7,767 Professional fees......................................... 87,427 7,470 Directors' and Officers' fees and expenses................ 44,963 1,995 Registration fees......................................... 80,696 25,277 Fund accounting fees...................................... 44,544 769 Other expenses............................................ 7,496 2,225 ----------- ----------- Total expenses........................................ 1,830,823 165,001 Less, expense waiver for Institutional Class service fees.................................................... (6,863) -- Less, expense reimbursement............................... (687,406) (6,175) ----------- ----------- Net expenses.......................................... 1,136,554 158,826 ----------- ----------- Net investment loss................................... (774,491) (183,618) ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized gain on: Investments and foreign currency...................... 273,094 1,811,031 Written option contracts expired or closed............ -- 83,651 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency...................... 37,040,705 (1,971,478) Written option contracts.............................. -- (80,028) ----------- ----------- Net gain (loss) on investments........................ 37,313,799 (156,824) ----------- ----------- Net increase (decrease) in net assets resulting from operations.......................................... $36,539,308 $ (340,442) =========== =========== + Net of Foreign Taxes Withheld of: $ 191,053 $ 20,450 =========== =========== ++ Net of expense reduction of: $ 146,433 $ 2,956 =========== ===========
See Notes to the Financial Statements. 26 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS -- (CONTINUED) For the Year Ended December 31, 2005
THE KINETICS THE SMALL CAP GOVERNMENT OPPORTUNITIES MONEY MARKET FUND FUND - ------------------------------------------------------------------------------------------ INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 1,055,763 $ -- Interest.................................................. 410,801 33,136 Income from securities lending............................ 23,385 -- Expenses only from Master Portfolio++..................... (1,054,085) (15,416) ----------- -------- Net investment income from Master Portfolio........... 435,864 17,720 ----------- -------- EXPENSES: Distribution fees -- Advisor Class A...................... 8,583 -- Shareholder servicing fees and expenses................... 181,061 6,655 Shareholder servicing fees -- Institutional Class......... 51,152 -- Reports to shareholders................................... 41,378 2,839 Administration fees....................................... 38,522 538 Professional fees......................................... 23,321 298 Directors' and Officers' fees and expenses................ 11,869 134 Registration fees......................................... 47,288 31,537 Fund accounting fees...................................... 6,445 -- Other expenses............................................ 2,254 508 ----------- -------- Total expenses........................................ 411,873 42,509 Less, expense waiver for Institutional Class service fees.................................................... (38,364) -- Less, expense reimbursement............................... (150,015) (45,848) ----------- -------- Net expenses.......................................... 223,494 (3,339) ----------- -------- Net investment income................................. 212,370 21,059 ----------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized (loss) on: Investments and foreign currency...................... (1,152,409) -- Written option contracts expired or closed............ -- -- Net change in unrealized appreciation of: Investments and foreign currency...................... 10,830,822 -- ----------- -------- Net gain on investments............................... 9,678,413 -- ----------- -------- Net increase in net assets resulting from operations.......................................... $ 9,890,783 $ 21,059 =========== ======== + Net of Foreign Taxes Withheld of: $ 5,065 $ -- =========== ======== ++ Net of expense reduction of: $ 82,356 $ -- =========== ========
See Notes to the Financial Statements. 27 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS
THE INTERNET EMERGING THE INTERNET FUND GROWTH FUND --------------------------- --------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------- OPERATIONS: Net investment income.......... $ 763,308 $ 899,885 $ 134,885 $ 79,835 Net realized gain (loss) on sale of investments, foreign currency and written option contracts expired or closed....................... (7,302,374) 33,311,287 (20,833) 128,442 Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options...................... 1,383,172 (16,515,065) (47,074) 103,604 ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations............... (5,155,894) 17,696,107 66,978 311,881 ------------ ------------ ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- NO LOAD CLASS: Net investment income.......... (1,218,235) (2,899,789) (160,455) (107,877) Net realized gains............. -- -- -- -- ------------ ------------ ----------- ----------- Total distributions........ (1,218,235) (2,899,789) (160,455) (107,877) ------------ ------------ ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income.......... (1,745) (3,218) N/A N/A Net realized gains............. -- -- N/A N/A ------------ ------------ ----------- ----------- Total distributions........ (1,745) (3,218) N/A N/A ------------ ------------ ----------- ----------- CAPITAL SHARE TRANSACTIONS -- NO LOAD CLASS: Proceeds from shares sold...... 1,976,990 20,187,510 895,722 1,385,953 Redemption fees................ 3,071 -- 663 -- Proceeds from shares issued to holders in reinvestment of dividends.................... 1,155,106 2,758,435 153,337 97,802 Cost of shares redeemed........ (50,437,185) (66,950,463) (1,644,963) (1,780,526) ------------ ------------ ----------- ----------- Net decrease in net assets resulting from No Load Class capital share transactions............. (47,302,018) (44,004,518) (595,241) (296,771) ------------ ------------ ----------- -----------
See Notes to the Financial Statements. 28 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE INTERNET EMERGING THE INTERNET FUND GROWTH FUND --------------------------- --------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold...... $ 131,159 $ 21,396,074 $ N/A $ N/A Redemption fees................ 995 -- N/A N/A Proceeds from shares issued to holders in reinvestment of dividends.................... 1,700 3,128 N/A N/A Cost of shares redeemed........ (177,757) (21,304,122) N/A N/A ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from Advisor Class A capital share transactions....... (43,903) 95,080 N/A N/A ------------ ------------ ----------- ----------- TOTAL DECREASE IN NET ASSETS..... (53,721,795) (29,116,338) (688,718) (92,767) NET ASSETS: Beginning of year.............. 202,282,392 231,398,730 4,584,350 4,677,117 ------------ ------------ ----------- ----------- End of year*................... 148,560,597 202,282,392 3,895,632 4,584,350 ============ ============ =========== =========== *Including undistributed net investment loss of:............ (2,242,506) (1,845,522) (66,901) (41,327) ------------ ------------ ----------- ----------- CHANGES IN SHARES OUTSTANDING -- NO LOAD CLASS: Shares sold.................... 82,811 863,154 200,890 324,922 Shares issued in reinvestment of dividends and distributions................ 46,841 108,472 34,613 21,685 Shares redeemed................ (2,104,010) (2,895,291) (373,836) (419,861) ------------ ------------ ----------- ----------- Net decrease in shares outstanding.............. (1,974,358) (1,923,665) (138,333) (73,254) ============ ============ =========== =========== CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A: Shares sold.................... 5,549 964,063 Shares issued in reinvestments of dividends and distributions................ 70 125 Shares redeemed................ (7,508) (968,696) ------------ ------------ Net decrease in shares outstanding................ (1,889) (4,508) ============ ============
See Notes to the Financial Statements. 29 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE PARADIGM FUND THE MEDICAL FUND ------------------------------- ---------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment loss................... $ (774,491) $ (410,824) $ (183,618) $ (262,143) Net realized gain on sale of investments, foreign currency and written option contracts expired or closed.............................. 273,094 4,035,209 1,894,682 546,535 Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options............................. 37,040,705 13,988,562 (2,051,506) 1,117,785 ------------- --------------- ----------- ----------- Net increase (decrease) in net assets resulting from operations...................... 36,539,308 17,612,947 (340,442) 1,402,177 ------------- --------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- NO LOAD CLASS: Net investment income................. (229,540) (73,771) -- -- Net realized gains.................... (505,860) (2,290,393) -- -- ------------- --------------- ----------- ----------- Total distributions............... (735,400) (2,364,164) -- -- ------------- --------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income................. -- (22,189) -- -- Net realized gains.................... (73,876) (689,040) -- -- ------------- --------------- ----------- ----------- Total distributions............... (73,876) (711,229) -- -- ------------- --------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS C: Net investment income................. -- (7,531) N/A N/A Net realized gains.................... (47,582) (233,914) N/A N/A ------------- --------------- ----------- ----------- Total distributions............... (47,582) (241,445) N/A N/A ------------- --------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- INSTITUTIONAL CLASS: Net investment income................. (18,827) -- N/A N/A Net realized gains.................... (13,174) -- N/A N/A ------------- --------------- ----------- ----------- Total distributions................... (32,001) -- N/A N/A ------------- --------------- ----------- ----------- CAPITAL SHARE TRANSACTIONS -- NO LOAD CLASS: Proceeds from shares sold............. 416,026,097 57,276,719 487,835 3,456,495 Redemption fees....................... 391,025 -- 658 -- Proceeds from shares issued to holders in reinvestment of dividends........ 684,456 2,324,520 -- -- Cost of shares redeemed............... (114,335,059) (37,924,198) (5,800,569) (8,926,297) ------------- --------------- ----------- ----------- Net increase (decrease) in net assets resulting from No Load Class capital share transactions.................... 302,766,519 21,677,041 (5,312,076) (5,469,802) ------------- --------------- ----------- ----------- CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold............. 38,036,699 13,180,643 127,135 142,200 Redemption fees....................... 2,465 -- -- -- Proceeds from shares issued to holders in reinvestment of dividends........ 66,629 624,768 -- -- Cost of shares redeemed............... (9,676,794) (3,787,846) (252,314) (248,964) ------------- --------------- ----------- ----------- Net increase (decrease) in net assets resulting from Advisor Class A capital share transactions.................... 28,428,999 10,017,565 (125,179) (106,764) ------------- --------------- ----------- -----------
See Notes to the Financial Statements. 30 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE PARADIGM FUND THE MEDICAL FUND ------------------------------- ---------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS C: Proceeds from shares sold............. 28,425,604 6,800,263 N/A N/A Redemption fees....................... 344 -- N/A N/A Proceeds from shares issued to holders in reinvestment of dividends........ 45,141 233,753 N/A N/A Cost of shares redeemed............... (1,886,081) (688,644) N/A N/A ------------- --------------- ----------- ----------- Net increase in net assets resulting from Advisor Class C capital share transactions...... 26,585,008 6,345,372 N/A N/A ------------- --------------- ----------- ----------- CAPITAL SHARE TRANSACTIONS -- INSTITUTIONAL CLASS: Proceeds from shares sold............. 10,716,396 -- N/A N/A Proceeds from shares issued to holders in reinvestments of dividends....... 32,002 -- N/A N/A Cost of shares redeemed............... (474,197) -- N/A N/A ------------- --------------- ----------- ----------- Net increase in net assets resulting from Institutional Class capital share transactions.................. 10,274,201 -- N/A N/A ------------- --------------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS................................ $ 403,705,176 $ 52,336,087 $(5,777,697) $(4,174,389) NET ASSETS: Beginning of year..................... 125,264,214 72,928,127 20,279,180 24,453,569 ------------- --------------- ----------- ----------- End of year*.......................... 528,969,390 125,264,214 14,501,483 20,279,180 ============= =============== =========== =========== *Including undistributed net investment (loss) of:............................ (1,563,028) (414,319) -- -- ------------- --------------- ----------- ----------- CHANGES IN SHARES OUTSTANDING -- NO LOAD CLASS: Shares sold........................... 21,458,479 3,574,328 30,290 222,542 Shares issued in reinvestment of dividends and distributions......... 33,667 132,450 -- -- Shares redeemed....................... (5,982,715) (2,483,043) (361,333) (565,590) ------------- --------------- ----------- ----------- Net increase (decrease) in shares outstanding..................... 15,509,431 1,223,735 (331,043) (343,048) ============= =============== =========== =========== CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A: Shares sold........................... 1,998,353 845,585 7,926 9,081 Shares issued in reinvestment of dividends and distributions......... 3,318 35,886 -- -- Shares redeemed....................... (516,504) (244,418) (15,948) (15,883) ------------- --------------- ----------- ----------- Net increase (decrease) in shares outstanding..................... 1,485,167 637,053 (8,022) (6,802) ============= =============== =========== ===========
See Notes to the Financial Statements. 31 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE PARADIGM FUND THE MEDICAL FUND ------------------------------- ---------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------------------- CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS C: Shares sold........................... 1,510,217 434,911 Shares issued in reinvestment of dividends and distributions......... 2,285 13,575 Shares redeemed....................... (100,110) (44,985) ------------- --------------- Net increase in shares outstanding..................... 1,412,392 403,501 ============= =============== CHANGES IN SHARES OUTSTANDING -- INSTITUTIONAL CLASS: Shares sold........................... 558,748 Shares issued in reinvestments of dividends and distributions......... 1,576 Shares redeemed....................... (23,847) ------------- Net increase in shares outstanding..................... 536,477 =============
See Notes to the Financial Statements. 32 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE SMALL CAP THE KINETICS GOVERNMENT OPPORTUNITIES FUND MONEY MARKET FUND ---------------------------- ------------------------------ FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------- OPERATIONS: Net investment income...... $ 212,370 $ 295,147 $ 21,059 $ -- Net realized gain on sale of investments, foreign currency and written option contracts expired or closed................ (1,152,409) 1,991,484 -- -- Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options.................. 10,830,822 2,368,164 -- -- ------------ ------------- ------------ --------------- Net increase in net assets resulting from operations........... 9,890,783 4,654,795 21,059 -- ------------ ------------- ------------ --------------- DISTRIBUTIONS TO SHAREHOLDERS -- NO LOAD CLASS: Net investment income...... (14,682) (305,568) (21,059) -- Net realized gains......... (329,578) (746,333) -- -- ------------ ------------- ------------ --------------- Total distributions.... (344,260) (1,051,901) (21,059) -- ------------ ------------- ------------ --------------- DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income...... (1,343) (20,162) N/A N/A Net realized gains......... (31,044) (62,614) N/A N/A ------------ ------------- ------------ --------------- Total distributions.... (32,387) (82,776) N/A N/A ------------ ------------- ------------ --------------- DISTRIBUTIONS TO SHAREHOLDERS -- INSTITUTIONAL CLASS: Net investment income...... (50,832) -- N/A N/A Net realized gains......... (400,218) -- N/A N/A ------------ ------------- ------------ --------------- Total distributions.... (451,050) -- N/A N/A ------------ ------------- ------------ ---------------
See Notes to the Financial Statements. 33 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE SMALL CAP THE KINETICS GOVERNMENT OPPORTUNITIES FUND MONEY MARKET FUND ---------------------------- ------------------------------ FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------- CAPITAL SHARE TRANSACTIONS -- NO LOAD CLASS: Proceeds from shares sold..................... 89,063,226 41,958,086 384,652 22,151,984 Redemption fees............ 19,178 -- -- -- Proceeds from shares issued to holders in reinvestment of dividends................ 338,406 1,046,435 20,405 -- Cost of shares redeemed.... (76,175,619) (34,183,636) (519,245) (24,033,453) ------------ ------------- ------------ --------------- Net increase (decrease) in net assets resulting from no load class capital share transactions... 13,245,191 8,820,885 (114,188) (1,881,469) ------------ ------------- ------------ --------------- CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold..................... $ 3,263,742 1,527,681 N/A N/A Redemption fees............ 2,745 -- N/A N/A Proceeds from shares issued to holders in reinvestment of dividends................ 29,430 69,025 N/A N/A Cost of shares redeemed.... (1,390,407) (1,046,134) N/A N/A ------------ ------------- ------------ --------------- Net increase in net assets resulting from Advisor Class A capital share transactions......... 1,905,510 550,572 N/A N/A ------------ ------------- ------------ --------------- CAPITAL SHARE TRANSACTIONS --INSTITUTIONAL CLASS: Proceeds from shares sold..................... 67,454,811 -- N/A N/A Proceeds from shares issued to holders in reinvestment of dividends................ 450,906 -- N/A N/A Cost of shares redeemed.... (1,981,158) -- N/A N/A ------------ ------------- ------------ --------------- Net increase in net assets resulting from Institutional Class capital share transactions......... 65,924,559 -- N/A N/A ------------ ------------- ------------ --------------- TOTAL INCREASE (DECREASE) IN NET ASSETS................. 90,138,346 12,891,575 (114,188) (1,881,469)
See Notes to the Financial Statements. 34 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE SMALL CAP THE KINETICS GOVERNMENT OPPORTUNITIES FUND MONEY MARKET FUND ---------------------------- ------------------------------ FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - -------------------------------------------------------------------------------------------- NET ASSETS: Beginning of year............ 38,631,636 25,740,061 1,166,245 3,047,714 ------------ ------------- ------------ --------------- End of year*................. 128,769,982 38,631,636 1,052,057 1,166,245 ============ ============= ============ =============== *Including undistributed net investment income of:...... 162,155 -- -- -- ------------ ------------- ------------ --------------- CHANGES IN SHARES OUTSTANDING -- NO LOAD CLASS: Shares sold................ 4,480,908 2,480,060 384,652 22,151,984 Shares issued in reinvestment of dividends and distributions........ 16,099 55,869 20,405 -- Shares redeemed............ (3,744,356) (2,055,870) (519,245) (24,033,453) ------------ ------------- ------------ --------------- Net increase (decrease) in shares outstanding.......... 752,651 480,059 (114,188) (1,881,469) ============ ============= ============ =============== CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A: Shares sold................ 163,666 89,828 N/A N/A Shares issued in reinvestment of dividends and distributions........ 1,409 3,697 N/A N/A Shares redeemed............ (73,232) (62,012) N/A N/A ------------ ------------- ------------ --------------- Net increase in shares outstanding.......... 91,843 31,513 N/A N/A ============ ============= ============ =============== CHANGES IN SHARES OUTSTANDING -- INSTITUTIONAL CLASS: Shares sold................ 3,291,874 -- N/A N/A Shares issued in reinvestments of dividends and distributions............ 21,472 -- N/A N/A Shares redeemed............ (94,705) -- N/A N/A ------------ ------------- ------------ --------------- Net increase in shares outstanding.......... 3,218,641 -- N/A N/A ============ ============= ============ ===============
See Notes to the Financial Statements. 35 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS December 31, 2005 1. ORGANIZATION Kinetics Mutual Funds, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "1940 Act") and is incorporated in the State of Maryland. The Company is an open-end management investment company issuing its shares in series. One billion shares are authorized for the Company with a par value of $0.001 per share. The series of the Company presently authorized are The Internet Fund ("Internet"), The Internet Emerging Growth Fund ("Emerging"),The Paradigm Fund ("Paradigm"), The Medical Fund ("Medical"), The Small Cap Opportunities Fund ("Small Cap") and The Kinetics Government Money Market Fund ("Government"). Investment operations of the Company began on October 21, 1996 (Internet), September 30, 1999 (Medical), December 31, 1999 (Emerging and Paradigm), February 3, 2000 (Government) and March 20, 2000 (Small Cap). Each series, unlike many other investment companies which directly acquire and manage their own portfolios of securities, seeks its investment objective by investing all of its investable assets in a corresponding portfolio series (each a "Master Portfolio" and collectively the "Master Portfolios") of Kinetics Portfolios Trust (the "Trust"). On April 28, 2000, each series in the Company, entered into a master-feeder fund structure. By entering into this structure, each series (each a "Feeder Fund" and collectively, the "Feeder Funds") invested all of its assets in a corresponding Master Portfolio which had the same investment objective as the Feeder Fund. Each Master Portfolio has multiple feeder funds. Each Feeder Fund receives a proportionate amount of interest in the Master Portfolio equal to its relative contribution of capital. Thus, each Feeder Fund is allocated its portion of income, gains (losses) and expenses from the Master Portfolio. Each Feeder Fund's respective interest in the corresponding Master Portfolio as of December 31, 2005 is as follows:
INTEREST IN MASTER PORTFOLIO ---------------- Internet Fund........................................ 99.995% Emerging Fund........................................ 99.832% Paradigm Fund........................................ 99.996% Medical Fund......................................... 99.924% Small Cap Fund....................................... 99.983% Government Fund...................................... 97.567%
36 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 Prior to the conversion to a master-feeder fund structure, on April 28, 2000, each then existing series conducted its own investment operations. Effective April 26, 2001, the Internet, Paradigm and Medical Funds issued an additional class of shares -- Advisor Class A. Effective December 31, 2001, the Small Cap Fund issued an additional class of shares -- Advisor Class A. Advisor Class A shares are subject to an annual Rule 12b-1 fee of 0.25% of average daily net assets. The Advisor Class A shares are also subject to a front-end sales charge of 5.75%. Effective June 28, 2002 the Paradigm Fund issued an additional class of shares -- Advisor Class C. Advisor Class C shares are subject to an annual Rule 12b-1 fee of 0.75% of average daily net assets. Effective May 27, 2005, the Paradigm Fund issued an additional class of shares -- the Institutional Class. Effective August 12, 2005, the Small Cap Opportunities Fund issued an additional class of shares -- the Institutional Class. The Institutional Class shares are subject to a service fee of 0.20% of average daily net assets. All other classes are subject to a service fee of 0.25% of average daily net assets. The No Load Class and the Institutional Class shares do not pay a 12b-1 fee or have a sales charge. Each class of shares for each Fund has identical rights and privileges except with respect to the Rule 12b-1 fees paid by the Advisor Class A and Class C shares, the sales charge on the Advisor Class A and Class C shares, the service fees paid by the No Load Class, Advisor Class A and Advisor Class C versus those paid by the Institutional Class, voting rights on matters pertaining to a single class of shares and the exchange privileges of each class of shares. Shares of each Feeder Fund will assess a 2.00% redemption fee (with exceptions) on shares redeemed or exchanged within 30 days of purchase. Refer to the Master Portfolio's financial statements to obtain information about the investment objective of the corresponding Feeder Fund. The financial statements of the Master Portfolios, including the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Feeder Funds' financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION Master Portfolio securities (other than Government) that are listed on a U.S. securities exchange for which market quotations are readily available are valued at the last quoted sale price on the day the valuation is made. Price information on listed securities is taken from the exchange where the security is primarily traded. All equity securities that are traded using the National 37 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 Association of Securities Dealers' Automated Quotation System ("NASDAQ") are valued using the NASDAQ Official Closing Price ("NOCP"). In the event market quotations are not readily available or if events occur that may materially affect the value of a particular security between the time trading ends on a particular security and the close of regular trading on the New York Stock Exchange ("NYSE"), "fair value" will be determined. Purchased 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 mean of the most recent bid and asked prices. 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. Investments in The Kinetics Government Money Market Portfolio and instruments with remaining maturities of 60 days or less are valued at amortized cost, which approximates fair value. Other assets and securities for which no quotations are readily available (including restricted securities) are valued in good faith at fair value using methods determined by the Board of Trustees of the Master Portfolios. At December 31, 2005, none of the Master Portfolios held securities which were fair valued. REPURCHASE AGREEMENTS Each Master Portfolio may enter into repurchase agreements with banks that are members of the Federal Reserve System or securities dealers who are members of a national securities exchange or are primary dealers in U.S. Government Securities. In connection with transactions in repurchase agreements, it is the Trust's policy that the Master Portfolio receive, as collateral, securities whose market value, including accrued interest, at all times will be at least equal to 100% of the amount invested by the Master Portfolio in each repurchase agreement. If the seller defaults, and the value of the collateral declines, realization of the collateral by the Master Portfolio may be delayed or limited. WRITTEN OPTION ACCOUNTING The Master Portfolios may write (sell) call or put options for trading or hedging purposes. When a Master Portfolio writes an option, an amount equal to the premium received by the Master Portfolio is included in the Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current 38 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 value of the option written. By writing the option, the Master Portfolio may become obligated during the term of the option to deliver or purchase the securities underlying the option at the exercise price if the option is exercised. Option contracts are valued at the average of the current bid and asked price reported on the day of the valuation. When an option expires on its stipulated expiration date or the Master Portfolio enters into a closing purchase transaction, the Master Portfolio realizes a gain or loss if the cost of the closing transaction differs from the premium received when the option was sold, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When an option is exercised, the premium originally received decreases the cost basis of the underlying security (or increases the proceeds on the security sold short) and the Master Portfolio realizes a gain or loss from the sale of the security (or closing of the short sale). As collateral for uncovered written options, the Master Portfolio is required under the 1940 Act to maintain assets consisting of cash, cash equivalents or liquid securities. This collateral is required to be adjusted daily to reflect the market value of the purchase obligation for put options or the market value of the instrument underlying the contract for call options. FOREIGN CURRENCY TRANSLATIONS The books and records of the Master Portfolios are maintained in U.S. dollars. For the Master Portfolios, foreign currency transactions are translated into U.S. dollars on the following basis: (i) market values of investment securities and other assets and liabilities are translated at the exchange rate of such currencies against the U.S. dollar, as provided by an approved pricing service, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Master Portfolios do not isolate and treat as ordinary income that portion of the results of operations arising as a result of changes in the exchange rate from the fluctuations arising from changes in the market prices of securities held during the period. However, for federal income tax purposes, the Master Portfolios do isolate and treat as ordinary income the effect of changes in foreign exchange rates arising from actual foreign currency transactions and the effect of changes in foreign exchange rates arising between trade date and settlement date. RESTRICTED SECURITIES The Master Portfolios may invest in restricted securities. These securities are valued by the Master Portfolios after giving due consideration to pertinent 39 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 factors including recent private sales, market conditions and the issuer's financial performance. The Master Portfolios have no right to require registration of unregistered securities. At December 31, 2005, the Master Portfolios did not hold any investment securities which were determined to be illiquid pursuant to the guidelines adopted by the Board of Trustees. WHEN-ISSUED SECURITIES The Master Portfolios may purchase securities on a when-issued or delayed delivery basis. Although the purchase amounts of these securities are established at the time the purchaser enters into the agreement, these securities may be delivered and paid for at a future date. The Master Portfolios record purchases of when-issued securities and reflect the values of such securities in determining net asset value in the same manner as other portfolio securities. The Master Portfolios maintain at all times cash or other liquid assets in an amount at least equal to the amount of outstanding commitments for when-issued securities. SECURITIES LENDING Each Master Portfolio may lend its portfolio securities to broker-dealers by entering directly into lending arrangements with such broker-dealers or indirectly through repurchase agreements with respect to no more than 33 1/3% of the total assets of each Portfolio (including any collateral posted) or 50% of the total assets of each Portfolio (excluding any collateral posted). Securities lending and repurchase transactions will be fully collateralized at all times with cash and/or short-term debt obligations. The Master Portfolios receive interest on the collateral received as well as a fee for the securities loaned. EXPENSE ALLOCATION Common expenses incurred by Feeder Funds are allocated among the Feeder Funds (i) based upon relative average net assets, (ii) as incurred on a specific identification basis, or (iii) equally among the Feeder Funds, depending on the nature of the expenditure. Each Feeder Fund records its proportionate share of the Master Portfolio's expenses on a daily basis. In addition, each Feeder Fund accrues its own separate expenses. Any cap on expenses includes Feeder Fund-specific expenses as well as the expenses allocated from the Master Portfolio. FEDERAL INCOME TAXES Each Master Portfolio will be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be subject to taxation 40 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed so an investor in the Portfolio can satisfy the requirements of subchapter M of the Internal Revenue Code. It is the Feeder Funds' policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and the Feeder Funds intend to distribute investment company net taxable income and net capital gains to shareholders. Therefore, no federal income tax provision is recorded. Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expenses and gain items for financial statement and tax purposes. Additionally, the Feeder Funds may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes. Where appropriate, reclassifications between capital accounts are made for such differences that are permanent in nature. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. OTHER Realized gains and losses on the sale of investments are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recognized on the accrual basis. Other noncash dividends are recognized as investment income at the fair value of the property received. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. 3. INVESTMENT ADVISER The Trust has entered into Investment Advisory Agreements (the "Agreements") with Kinetics Asset Management, Inc. (the "Adviser"), with whom certain officers and trustees of the Trust are affiliated, to furnish investment 41 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 advisory services to the Master Portfolios. Under the terms of the Agreements, the Master Portfolios compensate the Adviser for its management services at the annual rate of 1.25% of each Master Portfolio's average daily net assets, except for The Kinetics Government Money Market Portfolio, which compensates the Adviser at an annual rate of 0.50% of the Master Portfolio's average daily net assets. The Adviser has voluntarily agreed to continue to pay certain operating expenses as deemed appropriate. The Adviser may discontinue the voluntary reimbursement at any time, these reimbursements are not subject to recapture. For the year ended December 31, 2005, the amounts earned by the Adviser and the reimbursed expenses for the Feeder Funds are as follows:
INTERNET EMERGING --------- ---------- Annual Advisory Rate.................................. 1.25% 1.25% Expenses Reimbursed by Adviser........................ $ -- $21,647
PARADIGM MEDICAL --------- ---------- Annual Advisory Rate.................................. 1.25% 1.25% Expenses Reimbursed by Adviser........................ $687,406 $ 6,175
SMALL CAP GOVERNMENT --------- ---------- Annual Advisory Rate.................................. 1.25% 0.50% Expenses Reimbursed by Adviser........................ $150,015 $45,848
The Adviser receives a shareholder servicing fee from the No Load, Class A and Class C shares of the Feeder Funds pursuant to a Shareholder Servicing Agreement in the amount equal to 0.25% of the Feeder Fund's average daily net assets. For the Institutional Class the Adviser receives a shareholder servicing fee in the amount equal to 0.20% of the Institutional Class average daily net assets. At this time the Investment Adviser has contractually agreed to waive and/or reimburse the portion of the Institutional Class shareholder servicing fee in excess of 0.05% of its average daily net assets until at least May 1, 2006. For the period May 27, 2005 through December 31, 2005 the Adviser waived $6,863 and $38,364 in shareholder servicing fees for the Institutional Class of the Paradigm Fund and the Small Cap Opportunities Fund, respectively. The Adviser is responsible for paying a portion of these shareholder servicing fees to various agents that have a written shareholder servicing agreement with the Adviser and that perform shareholder servicing functions and maintenance of shareholder accounts on behalf of their clients who own shares of the Feeder Funds. 42 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 For the year ended December 31, 2005, the Feeder Funds were allocated $24,000 for the services of the Chief Compliance Officer employed by the Adviser. The Company, on behalf of the Funds, has adopted two Retail Distribution Plans pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plans"). One Plan is for Advisor Class A shares, while the other Plan is for Advisor Classes B and C shares. Under the first Plan, Advisor Class A shares may pay up to an annual rate of 0.50% of the average daily net asset value of shares to the Distributor or other qualified recipients under the Plan. During the year ended December 31, 2005, payments under the 12b-1 Plan for the Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds were limited to 0.25% of the average daily net asset value of such shares of such Funds. During the year ended December 31, 2005, the Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds incurred expenses of $745, $99,367, $1,449 and $8,583, respectively, pursuant to the 12b-1 Plan. Under the second Plan, Advisor Classes B and C shares pay an annual rate of 0.75% of the average daily net asset value of such shares. During the year ended December 31, 2005, Paradigm Advisor Class C shares incurred expenses of $161,371, pursuant to the 12b-1 Plan. Through December 31, 2005, the Funds had not issued any Advisor Class B shares. Kinetics Funds Distributor, Inc. (the "Distributor") acts as the Fund's principal underwriter in a continuous public offering of the Fund's shares. The Distributor is an affiliate of the Adviser. For the year ended December 31, 2005, the Distributor received $669, $129,461, $562 and $9,915 from sales loads from the Internet, Paradigm, Medical and Small Cap Funds. 4. RECLASSIFICATION OF CAPITAL ACCOUNTS Accounting principles generally accepted in the United States of America require that certain components of net assets relating to permanent differences be reclassified between financial and tax reporting. These reclassifications have no effect on net assets or net asset value per share. For the year ended December 31, 2005, each Fund recorded the following reclassifications to the accounts listed below: 43 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005
INCREASE (DECREASE) --------------------------------------------- ACCUMULATED NET ACCUMULATED INVESTMENT NET REALIZED PAID-IN-CAPITAL INCOME(LOSS) LOSS --------------- ------------ ------------ The Internet Fund............................. $ $ 59,688 $ (59,688) The Internet Emerging Growth Fund............. (4) 4 The Paradigm Fund............................. 263,110 (125,851) (137,259) The Medical Fund.............................. (183,606) 183,618 (12) The Small Cap Opportunities Fund.............. 8 16,642 (16,650)
5. INCOME TAXES At December 31, 2005 the Internet, Emerging, Paradigm and Small Cap Funds had $517,916, $9,349, $1,234,776 and $448,253, respectively, of undistributed net investment income on a tax basis. At December 31, 2005 the Paradigm Fund had $72 of accumulated gains on a tax basis. At December 31, 2005, the Feeder Funds had accumulated net realized capital loss carryovers expiring in the following years.
FEEDER FUND 2013 2011 2010 2009 2008 ----------- ---------- ------------ ------------ ----------- ---------- Internet............. $6,777,871 $ -- $140,178,775 $34,119,306 $ -- Emerging............. 4,885 887,154 2,635,504 5,481,052 2,488,196 Paradigm............. -- -- -- -- -- Medical.............. -- 22,109 -- -- -- Small Cap............ 499,629 -- -- -- --
To the extent that the Feeder Funds realize future net capital gains, those gains will be offset by any unused capital loss carryovers. For the year ended December 31, 2005, Medical Fund utilized $1,863,391 of capital loss carryforward. At December 31, 2005, the following Feeder Funds deferred, on a tax basis, post-October losses and straddle losses of:
FEEDER FUND POST-OCTOBER LOSSES STRADDLE LOSSES ----------- ------------------- --------------- Internet..................................... $2,499,021 $710,957 Emerging..................................... 23,208 -- Paradigm..................................... 289,117 19,348 Medical...................................... -- 105,854 Small Cap.................................... 657,878 64,069
44 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 The tax components of dividends paid during the years ended December 31, 2005 and December 31, 2004, are:
INTERNET EMERGING ----------------------------- ----------------------------- ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAINS INCOME CAPITAL GAINS DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION ------------ ------------- ------------ ------------- 2005...................... $1,219,980 $-- $160,455 $-- 2004...................... $2,903,007 $-- $107,877 $--
PARADIGM MEDICAL ----------------------------- ----------------------------- ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAINS INCOME CAPITAL GAINS DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION ------------ ------------- ------------ ------------- 2005...................... $ 475,907 $412,952 $-- $-- 2004...................... $2,388,158 $928,680 $-- $--
SMALL CAP ----------------------------- ORDINARY LONG-TERM INCOME CAPITAL GAINS DISTRIBUTION DISTRIBUTION ------------ ------------- 2005............................................... $ 436,587 $391,110 2004............................................... $1,134,677 $ --
The following information is presented on an income tax basis as of December 31, 2005.
INTERNET EMERGING PARADIGM MEDICAL SMALL CAP -------- -------- ---------- ------- --------- Distributable ordinary income.................... $517,916 $59,349 $1,234,776 $-- $448,253 Distributable long-term gains..................... $ -- $ -- $ 72 $-- $ --
6 TAX INFORMATION (UNAUDITED) The Internet, Emerging, Paradigm and Small Cap Funds designate 24%, 37%, 66% and 9%, respectively, of dividends declared after December 31, 2005 from net investment income as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Paradigm Fund hereby designates $115,597 as ordinary income distributions and $147,545 as long-term capital gain distributions for the purposes of the dividends paid deduction, which include earnings and profits distributed to shareholders on redemptions of Fund shares. For corporate shareholders in the Funds, the percentage of ordinary dividend income distributed for the year ended December 31, 2005, which is designated as qualifying for the dividends-received deduction, is as follows: Internet 22.4%, Emerging 36.0%, Paradigm 53.8% and Small Cap 6.5%. 45 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 7. INFORMATION ABOUT PROXY VOTING (UNAUDITED) The funds' proxy voting policies and procedures are available without charge upon request by calling toll-free at 1-800-930-3828 or by accessing the SEC's website at www.sec.gov. Information regarding how the funds voted proxies relating to portfolio securities during the twelve months ended June 30, 2006 will be available after August 31, 2006 without charge, upon request, by calling toll-free at 1-800-930-3828 or by accessing the SEC's website at www.sec.gov. 8. INFORMATION ABOUT THE PORTFOLIO HOLDINGS (UNAUDITED) The Funds file their complete schedule of portfolio holdings for their first and third fiscal quarters with the SEC on Form N-Q. The Funds' Form N-Q is available without charge, upon request, by calling toll-free at 1-(800) 930-3828. Furthermore, you can obtain the Form N-Q on the SEC's website at www.sec.gov. Finally, the Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-(800)-SEC-0330. 46 (This page intentionally left blank) 47 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE INTERNET FUND ---------------------------------------------------------------- NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2005 2004 ------------- --------------- ------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period...... $ 25.29 $24.93 $ 23.31 -------- ------ -------- Income from Investment Operations: Net investment income (loss)................. 0.11(5) 0.05(5) 0.10(5) Net realized and unrealized gain (loss) on investments......... (0.54) (0.44) 2.25 -------- ------ -------- Total gain (loss) from investment operations.......... (0.43) (0.39) 2.35 -------- ------ -------- Redemption fees............ 0.00(6) 0.00(6) -- Less Distributions: From net investment income................. (0.20) (0.14) (0.37) From net realized gains.................. -- -- -- -------- ------ -------- Total distributions....... (0.20) (0.14) (0.37) -------- ------ -------- Net Asset Value, End of Period................... $ 24.66 $24.40 $ 25.29 ======== ====== ======== Total Return(5)............ (1.69)% (1.55)% 10.06% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's).................. $148,260 $ 300 $201,929 Ratio of expenses to average net assets: Before expense reimbursement........ 2.35% 2.60% 2.37% After expense reimbursement........ 2.35% 2.60% 2.37% Ratio of net investment income (loss) to average net assets: Before expense reimbursement........ 0.46% 0.21% 0.44% After expense reimbursement........ 0.46% 0.21% 0.44% Portfolio turnover rate.... N/A N/A N/A THE INTERNET FUND -------------------------------------- ADVISOR CLASS A NO LOAD CLASS FOR THE FOR THE YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2004 2003 --------------- ------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period...... $22.88 $ 16.69 ------ -------- Income from Investment Oper Net investment income (loss)................. 0.05(5) 0.03 Net realized and unrealized gain (loss) on investments......... 2.23 6.66 ------ -------- Total gain (loss) from investment operations.......... 2.28 6.69 ------ -------- Redemption fees............ -- -- Less Distributions: From net investment income................. (0.23) (0.07) From net realized gains.................. -- -- ------ -------- Total distributions....... (0.23) (0.07) ------ -------- Net Asset Value, End of Period................... $24.93 $ 23.31 ====== ======== Total Return(5)............ 9.95% 40.11% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's).................. $ 354 $230,971 Ratio of expenses to average net assets: Before expense reimbursement........ 2.62% 2.39% After expense reimbursement........ 2.62% 2.39% Ratio of net investment income (loss) to average net assets: Before expense reimbursement........ 0.19% 0.11% After expense reimbursement........ 0.19% 0.11% Portfolio turnover rate.... N/A N/A
- ------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for each period. (4) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (5) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (6) The amount is less than $0.005 per share. See Notes to the Financial Statements. 48
THE INTERNET FUND - ------------------------------------------------------------------------------------------------------------- ADVISOR CLASS A ADVISOR CLASS A NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS APRIL 26, FOR THE FOR THE FOR THE FOR THE 2001(+) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2002 2001 2001 --------------- ------------- --------------- --------------- --------------- $16.47 $ 21.80 $21.75 $ 24.12 $23.50 ------ -------- ------ -------- ------ (0.82) (0.08)(5) (0.12)(5) (0.17) (0.12)(5) 7.23 (5.03) (5.16) (2.15) (1.63) ------ -------- ------ -------- ------ 6.41 (5.11) (5.28) (2.32) (1.75) ------ -------- ------ -------- ------ -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- ------ -------- ------ -------- ------ -- -- -- -- -- ------ -------- ------ -------- ------ $22.88 $ 16.69 $16.47 $ 21.80 $21.75 ====== ======== ====== ======== ====== 38.92% (23.44)% (24.28)% (9.62)% (7.45)%(1) $ 428 $189,618 $ 507 $297,793 $ 975 2.64% 2.42% 2.67% 2.37% 2.62%(2) 2.64% 2.42% 2.67% 2.37% 2.62%(2) (0.14)% (0.41)% (0.66)% (0.61)% (0.86)%(2) (0.14)% (0.41)% (0.66)% (0.61)% (0.86)%(2) N/A N/A N/A N/A N/A
See Notes to the Financial Statements. 49 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE INTERNET EMERGING GROWTH FUND ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ PER SHARE DATA(1) Net Asset Value, Beginning of Year................. $ 4.50 $ 4.28 $ 3.24 $ 4.30 $ 3.69 ------ ------ ------ ------ ------ Income from Investment Operations: Net investment income (loss)...... 0.15 0.08 0.04 (0.08) (0.03) Net realized and unrealized gain (loss) on investments........... (0.03) 0.25 1.05 (0.98) 0.64 ------ ------ ------ ------ ------ Total gain (loss) from investment operations........ 0.12 0.33 1.09 (1.06) 0.61 ------ ------ ------ ------ ------ Redemption fees..................... 0.00(2) -- -- -- -- Less Distributions: From net investment income........ (0.19) (0.11) (0.05) -- -- From net realized gains........... -- -- -- -- -- ------ ------ ------ ------ ------ Total distributions........... (0.19) (0.11) (0.05) -- -- ------ ------ ------ ------ ------ Net Asset Value, End of Year........ $ 4.43 $ 4.50 $ 4.28 $ 3.24 $ 4.30 ====== ====== ====== ====== ====== Total Return........................ 2.65% 7.67% 33.56% (24.65)% 16.53% SUPPLEMENTAL DATA AND RATIOS Net assets, end of year (000's)..... $3,896 $4,584 $4,677 $3,338 $5,277 Ratio of expenses to average net assets: Before expense reimbursement.... 3.22% 3.45% 3.64% 3.78% 4.17% After expense reimbursement..... 2.69% 2.67% 2.74% 2.74% 2.74% Ratio of net investment income (loss) to average net assets: Before expense reimbursement.... 2.80% 1.08% 0.11% (3.03)% (2.09)% After expense reimbursement..... 3.33% 1.84% 1.01% (1.99)% (0.66)% Portfolio turnover rate............. N/A N/A N/A N/A N/A
- ------------------ (1) Information presented relates to a share of capital stock outstanding for each period. (2) The amount is less than $0.005 per share. See Notes to the Financial Statements. 50 (This page intentionally left blank) 51 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE PARADIGM FUND --------------------------------------------------------------------------------------- INSTITUTIONAL CLASS NO LOAD CLASS ADVISOR CLASS A ADVISOR CLASS C FOR THE PERIOD NO LOAD CLASS FOR THE FOR THE FOR THE MAY 27, 2005 FOR THE YEAR ENDED YEAR ENDED YEAR ENDED THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2005 2005 2005 2004 ------------- --------------- --------------- ------------------- ------------- PER SHARE DATA(1) Net Asset Value, Beginning of Period................... $ 17.54 $ 17.40 $ 17.21 $ 18.13 $ 14.91 -------- ------- ------- ------- ------- Income from Investment Operations: Net investment income (loss).......... (0.03)(6) (0.07)(6) (0.17)(6) 0.01(2)(6) (0.06)(6) Net realized and unrealized gain (loss) on investments............... 2.82 2.77 2.74 2.23 3.17 -------- ------- ------- ------- ------- Total gain (loss) from investment operations....................... 2.79 2.70 2.57 2.24 3.11 -------- ------- ------- ------- ------- Redemption fees........................ 0.03 0.00(2) 0.00(2) -- -- Less Distributions: From net investment income............ (0.01) -- -- (0.04) (0.02) From net realized gains............... (0.02) (0.02) (0.02) (0.02) (0.46) -------- ------- ------- ------- ------- Total distributions................ (0.03) (0.02) (0.02) (0.06) (0.48) -------- ------- ------- ------- ------- Net Asset Value, End of Period......... $ 20.33 $ 20.08 $ 19.76 $ 20.31 $ 17.54 ======== ======= ======= ======= ======= Total Return(5)........................ 16.11% 15.54% 14.96% 12.35%(3) 20.84% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)...... $418,914 $60,421 $38,740 $10,895 $89,313 Ratio of expenses to average net assets: Before expense reimbursement and waivers(7)......................... 1.93% 2.18% 2.68% 1.88%(4) 2.10% After expense reimbursement......... 1.69% 1.94% 2.44% 1.49% 1.74% Ratio of net investment income (loss) to average net assets: Before expense reimbursement........ (0.41)% (0.66)% (1.16)% (0.37)%(4) (0.77)% After expense reimbursement......... (0.17)% (0.42)% (.92)% 0.02%(4) (0.41)% Portfolio turnover rate................ N/A N/A N/A N/A N/A
- ------------------ (+) Commencement of operations. (1) Information presented relates to a share of capital stock outstanding for each period. (2) The amount is less than $0.005 per share. (3) Not annualized. (4) Annualized. (5) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (6) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (7) See footnote #3 for the Investment Adviser, waiver discussion. See Notes to the Financial Statements. 52
THE PARADIGM FUND ----------------------------------------------------------------------------------------------------- ADVISOR CLASS A ADVISOR CLASS C NO LOAD CLASS ADVISOR CLASS A ADVISOR CLASS C NO LOAD CLASS FOR THE FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2004 2004 2003 2003 2003 2002 --------------- --------------- ------------- --------------- --------------- ------------- $ 14.82 $14.73 $ 10.12 $ 10.07 $10.05 $10.61 ------- ------ ------- ------- ------ ------ (0.10) (0.18) 0.05 0.08 0.02 (0.14) 3.16 3.14 4.79 4.70 4.67 (0.35) ------- ------ ------- ------- ------ ------ 3.06 2.96 4.84 4.78 4.69 (0.49) ------- ------ ------- ------- ------ ------ -- -- -- -- -- -- (0.02) (0.02) (0.05) (0.03) (0.01) -- (0.46) (0.46) -- -- -- -- ------- ------ ------- ------- ------ ------ (0.48) (0.48) (0.05) (0.03) (0.01) -- ------- ------ ------- ------- ------ ------ $ 17.40 $17.21 $ 14.91 $ 14.82 $14.73 $10.12 ======= ====== ======= ======= ====== ====== 20.63% 20.08% 47.87% 47.47% 46.68% (4.62)% $26,525 $9,426 $57,646 $13,157 $2,125 $5,044 2.35% 2.85% 2.24% 2.49% 2.99% 2.97% 1.99% 2.49% 1.74% 1.99% 2.49% 2.74% (1.02)% (1.52)% 0.57% 0.32% (0.18)% (1.61)% (0.66)% (1.16)% 1.07% 0.82% 0.32% (1.38)% N/A N/A N/A N/A N/A N/A THE PARADIGM FUND ---------------------------------- ADVISOR CLASS A ADVISOR CLASS C FOR THE JUNE 28, 2002(+) YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, 2002 2002 --------------- ---------------- $10.58 $10.64 ------ ------ (0.17) (0.11) (0.34) (0.48) ------ ------ (0.51) (0.59) ------ ------ -- -- -- -- -- -- ------ ------ -- -- ------ ------ $10.07 $10.05 ====== ====== (4.82)% (5.55)(3) $4,943 $ 519 3.22% 3.72%(4) 2.99% 3.49%(4) (1.86)% (2.36)%(4) (1.63)% (2.13)%(4) N/A N/A
See Notes to the Financial Statements. 53
THE PARADIGM FUND ---------------------------------- NO LOAD CLASS ADVISOR CLASS A FOR THE APRIL 26, 2001(+) YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, 2001 2001 ------------- ----------------- PER SHARE DATA(1) Net Asset Value, Beginning of Period........................... $10.40 $10.42 ------ ------ Income from Investment Operations: Net investment income (loss).................. (0.13) (0.10)(6) Net realized and unrealized gain (loss) on investments................................. 0.34 0.26 ------ ------ Total gain (loss) from investment operations............................. 0.21 0.16 ------ ------ Redemption fees................................. -- -- Less Distributions: From net investment income.................... -- -- From net realized gains....................... -- -- ------ ------ Total distributions...................... -- -- ------ ------ Net Asset Value, End of Period.................. $10.61 $10.58 ====== ====== Total Return(6)................................. 2.02% 1.54%(3) SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)............... $4,817 $4,091 Ratio of expenses to average net assets: Before expense reimbursement................ 3.47% 3.72%(4) After expense reimbursement................. 2.74% 2.99%(4) Ratio of net investment income (loss) to average net assets: Before expense reimbursement................ (1.91)% (2.16)%(4) After expense reimbursement................. (1.18)% (1.43)%(4) Portfolio turnover rate......................... N/A N/A
- ------------------ (+) Commencement of operations. (1) Information presented relates to a share of capital stock outstanding for each period. (2) The amount is less than $0.005 per share. (3) Not annualized. (4) Annualized. (5) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (6) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. See Notes to the Financial Statements. 54 (This page intentionally left blank) 55 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE MEDICAL FUND --------------------------------------------------------------------------------------------------------- NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2005 2004 2004 2003 ------------- --------------- ------------- --------------- ------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period... $ 16.76 $16.49 $ 15.67 $15.47 $ 12.72 ------- ------ ------- ------ ------- Income from Investment Operations: Net investment loss... (0.18)(5) (0.22)(5) (0.10)(5) (0.11)(5) (0.25) Net realized and unrealized gain (loss) on investments......... 0.06 0.07 1.19 1.13 3.20 ------- ------ ------- ------ ------- Total gain (loss) from investment operations....... (0.12) (0.15) 1.09 1.02 2.95 ------- ------ ------- ------ ------- Redemption fees......... 0.00(6) -- -- -- -- Less Distributions: From net investment income.............. -- -- -- -- -- From net realized gains............... -- -- -- -- -- ------- ------ ------- ------ ------- Total distributions.... -- -- -- -- -- ------- ------ ------- ------ ------- Net Asset Value, End of Period................ $ 16.64 $16.34 $ 16.76 $16.49 $ 15.67 ======= ====== ======= ====== ======= Total Return(4)......... (0.72)% (0.91)% 6.96% 6.59% 23.19% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)........ $13,943 $ 559 $19,583 $ 696 $23,695 Ratio of expenses to average net assets: Before expense reimbursement..... 2.48% 2.73% 2.54% 2.79% 2.52% After expense reimbursement..... 2.44% 2.69% 2.39% 2.64% 2.52% Ratio of net investment loss to average net assets: Before expense reimbursement..... (1.14)% (1.39)% (1.31)% (1.56)% (1.55)% After expense reimbursement..... (1.10)% (1.35)% (1.16)% (1.41)% (1.55)% Portfolio turnover rate.................. N/A N/A N/A N/A N/A
- ------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for each period. (4) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (5) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (6) The amount is less than $0.005 per share. See Notes to the Financial Statements. 56
THE MEDICAL FUND -------------------------------------------------------------------------------------------------------- ADVISOR CLASS A NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS ADVISOR CLASS A FOR THE FOR THE FOR THE FOR THE APRIL 26, 2001(+) YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2002 2001 2001 --------------- ------------- --------------- ------------- ----------------- $12.61 $ 18.06 $18.01 $ 20.98 $18.24 ------ ------- ------ ------- ------ (0.63) (0.21) (0.24) (0.25) (0.17)(5) 3.49 (5.05) (5.08) (2.64) (0.03) ------ ------- ------ ------- ------ 2.86 (5.26) (5.32) (2.89) (0.20) ------ ------- ------ ------- ------ -- -- -- -- -- -- -- -- -- -- -- (0.08) (0.08) (0.03) (0.03) ------ ------- ------ ------- ------ -- (0.08) (0.08) (0.03) (0.03) ------ ------- ------ ------- ------ $15.47 $ 12.72 $12.61 $ 18.06 $18.01 ====== ======= ====== ======= ====== 22.68% (29.14)% (29.56)% (13.77)% (1.09)%(1) $ 758 $22,604 $ 794 $40,416 $1,203 2.77% 2.55% 2.80% 2.28% 2.53%(2) 2.77% 2.55% 2.80% 2.28% 2.53%(2) (1.80)% (1.49)% (1.74)% (1.17)% (1.42)%(2) (1.80)% (1.49)% (1.74)% (1.17)% (1.42)%(2) N/A N/A N/A N/A N/A
See Notes to the Financial Statements. 57 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE SMALL CAP OPPORTUNITIES FUND ---------------------------------------------------------------------- NO LOAD CLASS ADVISOR CLASS A INSTITUTIONAL CLASS FOR THE FOR THE FOR THE PERIOD YEAR ENDED YEAR ENDED AUGUST 12, 2005 DECEMBER 31, DECEMBER 31, THROUGH 2005 2005 DECEMBER 31, 2005 ------------- --------------- ------------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period...................... $ 18.69 $18.63 $ 20.48 ------- ------ ------- Income from Investment Operations: Net investment income (loss).................... 0.12(5) 0.02(5) 0.00(5)(6) Net realized and unrealized gain (loss) on investments............... 2.35 2.38 0.67 ------- ------ ------- Total gain (loss) from investment operations............. 2.47 2.40 0.67 ------- ------ ------- Redemption fees............... 0.00(6) 0.00(6) -- Less Distributions: From net investment income.................... (0.01) (0.01) (0.02) From net realized gains..... (0.13) (0.13) (0.13) ------- ------ ------- Total distributions..... (0.14) (0.14) (0.15) ------- ------ ------- Net Asset Value, End of Period...................... $ 21.02 $20.89 $ 21.00 ======= ====== ======= Total Return(4)............... 13.17% 12.83% 3.23%(1) SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)..................... $55,979 $5,205 $67,586 Ratio of expenses to average net assets: Before expense reimbursement........... 1.93% 2.16% 1.77%(2) After expense reimbursement........... 1.66% 1.94% 1.59%(2) Ratio of net investment income (loss) to average net assets: Before expense reimbursement........... 0.18% (0.17)% (0.21)%(2) After expense reimbursement........... 0.45% 0.06% (0.03)%(2) Portfolio turnover rate....... N/A N/A N/A THE SMALL CAP OPPORTUNITIES FUND ------------------------------------ NO LOAD CLASS ADVISOR CLASS A FOR THE FOR THE YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 2004 2004 ------------- --------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period...................... $ 16.55 $16.50 ------- ------ Income from Investment Operations: Net investment income (loss).................... 0.22(5) 0.18(5) Net realized and unrealized gain (loss) on investments............... 2.49 2.49 ------- ------ Total gain (loss) from investment operations............. 2.71 2.67 ------- ------ Redemption fees............... -- -- Less Distributions: From net investment income.................... (0.16) (0.13) From net realized gains..... (0.41) (0.41) ------- ------ Total distributions..... (0.57) (0.54) ------- ------ Net Asset Value, End of Period...................... $ 18.69 $18.63 ======= ====== Total Return(4)............... 16.40% 16.17% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)..................... $35,702 $2,929 Ratio of expenses to average net assets: Before expense reimbursement........... 2.03% 2.28% After expense reimbursement........... 1.74% 1.99% Ratio of net investment income (loss) to average net assets: Before expense reimbursement........... 1.01% 0.76% After expense reimbursement........... 1.30% 1.05% Portfolio turnover rate....... N/A N/A
- ------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for each period. (4) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (5) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (6) The amount listed is less than $0.005 per share. See Notes to the Financial Statements. 58
THE SMALL CAP OPPORTUNITIES FUND --------------------------------------------------------------------------------------------------------------------------- NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS ADVISOR CLASS A NO LOAD CLASS FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED ADVISOR CLASS A DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2003 2002 2002 2001 2001(+) ------------- --------------- ------------- --------------- ------------- --------------- 10.04 $ $10.03 $14.50 $14.50 $11.10 $14.50 ------- ------ ------ ------ ------ ------ 0.25 0.15 (0.18)(5) (0.20)(5) (0.19)(5) -- 6.43 6.47 (4.21) (4.20) 3.59 -- ------- ------ ------ ------ ------ ------ 6.68 6.62 (4.39) (4.40) 3.40 -- ------- ------ ------ ------ ------ ------ -- -- -- -- -- -- (0.17) (0.15) -- -- -- -- -- -- (0.07) (0.07) -- -- ------- ------ ------ ------ ------ ------ (0.17) (0.15) (0.07) (0.07) -- -- ------- ------ ------ ------ ------ ------ $ 16.55 $16.50 $10.04 $10.03 $14.50 $14.50 ======= ====== ====== ====== ====== ====== 66.51% 65.98% (30.28)% (30.35)% 30.63% 0.00%(1) $23,665 $2,075 $3,313 $ 172 $9,266 $ 1 % 2.34 2.59% 2.95% 3.20% 3.73% N/A % 2.34 2.59% 2.74% 2.99% 2.74% N/A % 2.14 1.89% (1.59)% (1.84)% (2.37)% N/A % 2.14 1.89% (1.38)% (1.63)% (1.38)% N/A N/A N/A N/A N/A N/A N/A
See Notes to the Financial Statements. 59 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS
THE KINETICS GOVERNMENT MONEY MARKET FUND ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ PER SHARE DATA(3) Net Asset Value, Beginning of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------ ------ ------ -------- ------- Income from Investment Operations: Net investment income......... 0.02 -- -- 0.00(4) 0.02 Net realized and unrealized gain on investments......... -- -- -- -- -- ------ ------ ------ -------- ------- Total gain from investment operations.............. 0.02 -- -- 0.00(4) 0.02 ------ ------ ------ -------- ------- Less Distributions: From net investment income.... (0.02) -- -- (0.00)(4) (0.02) From net realized gains....... -- -- -- -- -- ------ ------ ------ -------- ------- Total distributions....... (0.02) -- -- (0.00)(4) (0.02) ------ ------ ------ -------- ------- Net Asset Value, End of Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ====== ====== ====== ======== ======= Total Return.................... 1.88% 0.00% 0.00% 0.22% 2.36% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)....................... $1,052 $1,166 $3,048 $128,657 $94,886 Ratio of expenses to average net assets: Before expense reimbursement............. 5.08% 2.11% 1.32% 1.29% 1.35% After expense reimbursement............. 1.06% 0.98% 0.94% 1.23% 1.24% Ratio of net investment income (loss) to average net assets: Before expense reimbursement............. (2.17)% (1.13)% (0.38)% 0.13% 2.12% After expense reimbursement............. 1.85% 0.00% 0.00% 0.19% 2.23% Portfolio turnover rate......... N/A N/A N/A N/A N/A
- ------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for each period. (4) The amount listed is less than $0.005 per share. See Notes to the Financial Statements. 60 KINETICS MUTUAL FUNDS, INC. REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of and Board of Directors Kinetics Mutual Funds, Inc. Sleepy Hollow, New York We have audited the accompanying statements of assets and liabilities of The Internet Fund, The Internet Emerging Growth Fund, The Paradigm Fund, the Medical Fund, the Small Cap Opportunities Fund and The Kinetics Government Money Market Fund, each a series of shares of Kinetics Mutual Funds, Inc. (the "Funds"), as of December 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial highlights for each of the three years in the period ended December 31, 2003 were audited by other auditors whose report dated February 20, 2004 expressed an unqualified opinion on the statement of changes in net assets and the financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Fund's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. 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 provides 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 the above mentioned Funds as of December 31, 2005, the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania February 03, 2006 61 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS ALLOCATION OF PORTFOLIO ASSETS December 31, 2005 THE INTERNET PORTFOLIO [GRAPH] Common Stocks 91.28 Short-Term Investments 1.18 Preferred Stocks 0.00 Corporate Bonds 2.13 Rights 2.63 Convertible Bonds 1.99 Put Options 0.00 Written Options 0.00 Investments Purchased with Cash Proceeds from Securities 11.24 Lending Other Assets and Liabilities -10.45
THE INTERNET EMERGING GROWTH PORTFOLIO [GRAPH] Common Stocks 82.02 Short-Term Investments 4.44 Preferred Stocks 0.03 Corporate Bonds 5.06 Rights 4.77 Convertible Bonds 3.70 Put Options 0.26 Written Options -0.48 Investments Purchased with Cash Proceeds from Securities 9.89 Lending Other Assets and Liabilities -9.69
62 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS ALLOCATION OF PORTFOLIO ASSETS December 31, 2005 -- (Continued) THE PARADIGM PORTFOLIO [GRAPH] Common Stocks 88.39 Short-Term Investments 11.32 Convertible Bonds 0.03 Call Options 0.07 Investments Purchased with Cash Proceeds from Securities 9.71 Lending Other Assets and Liabilities -9.52
THE MEDICAL PORTFOLIO [GRAPH] Common Stocks 97.57 Short-Term Investments 2.50 Rights 0.00 Investments Purchased with Cash Proceeds from Securities 6.65 Lending Other Assets and Liabilities -6.72
63 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS ALLOCATION OF PORTFOLIO ASSETS December 31, 2005 -- (Continued) THE SMALL CAP OPPORTUNITIES PORTFOLIO [GRAPH] Common Stocks 83.39 Short-Term Investments 14.55 Rights 1.60 Convertible Bonds 0.41 Investments Purchased with Cash Proceeds from Securities 16.72 Lending Other Assets and Liabilities -16.67
GOVERNMENT MONEY MARKET PORTFOLIO [GRAPH] Short-Term Investments 100.1 Other Assets and Liabilities -0.1
64 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005
COMMON STOCKS -- 91.28%+ SHARES VALUE - ------------------------------------------------------------------------ AEROSPACE & DEFENSE -- 7.71%+ CACI International, Inc. -- Class A*..... 200,000 $ 11,476,000 ------------ AIR FREIGHT & LOGISTICS -- 5.45%+ Expeditors International of Washington, Inc.................................... 120,000 8,101,200 ------------ ASIAN EXCHANGES -- 0.33%+ Hong Kong Exchanges & Clearing Limited... 120,000 497,572 ------------ CAPITAL MARKETS -- 0.07%+ Internet HOLDRs Trust(1)................. 500 32,915 Van der Moolen Holding N.V. ADR.......... 10,000 71,400 ------------ 104,315 ------------ COMMERCIAL SERVICES & SUPPLIES -- 5.03%+ Comdisco Holding Company, Inc............ 194,400 3,693,600 Copart, Inc.*............................ 6,000 138,360 FTI Consulting, Inc.*.................... 50,000 1,372,000 Ritchie Bros. Auctioneers Incorporated... 54,000 2,281,500 ------------ 7,485,460 ------------ COMMUNICATIONS EQUIPMENT -- 0.03%+ QUALCOMM, Inc............................ 1,000 43,080 ------------ COMPUTERS & PERIPHERALS -- 0.10%+ Apple Computer, Inc.*.................... 2,000 143,780 ------------ DERIVATIVE EXCHANGES -- 3.17%+ CBOT Holdings, Inc. -- Class A*(2)....... 7,200 675,072 Chicago Mercantile Exchange Holdings Inc.................................... 5,600 2,057,944 International Securities Exchange, Inc.*.................................. 72,000 1,981,440 ------------ 4,714,456 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.08%+ Apollo Group, Inc. -- Class A*........... 2,000 120,920 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.47%+ eSPEED, Inc. -- Class A*................. 90,000 693,900 ------------
See Notes to the Financial Statements. 65 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 13.96%+ Leucadia National Corporation............ 354,000 $ 16,800,840 Lynch Interactive Corporation*........... 1,800 3,913,200 XO Communications, Inc.*................. 30,000 54,600 ------------ 20,768,640 ------------ EUROPEAN EXCHANGES -- 0.26%+ London Stock Exchange plc................ 36,000 384,013 ------------ HEALTH CARE PROVIDERS & SERVICES --0.62%+ Emdeon Corporation*(2)................... 109,000 922,140 ------------ INTERNET & CATALOG RETAIL -- 0.21%+ eBay, Inc.*.............................. 6,000 259,500 IAC/InterActiveCorp*..................... 1,000 28,310 Overstock.com, Inc.*(2).................. 1,000 28,150 ------------ 315,960 ------------ INTERNET SOFTWARE & SERVICES -- 1.57%+ Baidu.com, Inc. ADR*(2).................. 200 12,584 Google Inc. -- Class A*.................. 1,800 746,748 MIVA, Inc.*.............................. 10,000 49,500 Netease.com, Inc. ADR*(2)................ 1,000 56,160 NetRatings, Inc.*........................ 116,000 1,430,280 SINA Corp*............................... 1,000 24,160 Sohu.com, Inc.*.......................... 1,000 18,340 ------------ 2,337,772 ------------ IT SERVICES -- 14.68%+ Anteon International Corporation*........ 24,000 1,304,400 CheckFree Corporation*................... 360,000 16,524,000 ManTech International Corporation -- Class A*............................... 144,000 4,011,840 ------------ 21,840,240 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.00%+ Marvel Entertainment, Inc.*.............. 322 5,274 ------------
See Notes to the Financial Statements. 66 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ MEDIA -- 28.62%+ DreamWorks Animation SKG, Inc.*.......... 3,000 $ 73,680 The E.W. Scripps Company -- Class A...... 2,400 115,248 Gemstar-TV Guide International, Inc.*.... 600,000 1,566,000 Getty Images, Inc.*...................... 36,600 3,267,282 Groupe Bruxelles Lambert S.A............. 50,000 4,904,282 Harris Interactive, Inc.*................ 600,000 2,586,000 Liberty Global, Inc. -- Class A*......... 300,707 6,765,908 Liberty Global, Inc. -- Series C*........ 315,707 6,692,988 Pixar*................................... 3,600 189,792 PrimaCom AG ADR*......................... 610,000 2,211,250 ProQuest Company*........................ 6,000 167,460 The Washington Post Company -- Class B... 18,000 13,770,000 XM Satellite Radio Holdings, Inc. -- Class A*............................... 10,000 272,800 ------------ 42,582,690 ------------ SPECIALISTS -- 1.26%+ LaBranche & Co Inc.*(2).................. 186,000 1,880,460 ------------ U.S. EQUITY EXCHANGES -- 7.65%+ Archipelago Holdings Inc.*(2)............ 144,000 7,166,880 Nasdaq Stock Market Inc.*................ 120,000 4,221,600 ------------ 11,388,480 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.01%+ Sunshine PCS Corporation -- Class A*..... 149,890 16,863 ------------ TOTAL COMMON STOCKS (cost $124,195,481).................... 135,823,215 ------------
See Notes to the Financial Statements. 67 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ CONVERTIBLE PREFERRED STOCKS -- 0.00%+ SHARES VALUE - ------------------------------------------------------------------------ MEDIA -- 0.00%+ Adelphia Communications Corporation, 7.500%* (cost $583,300)........................ 190,000 $ 3,800 ------------ CORPORATE BONDS -- PRINCIPAL CONVERTIBLE -- 1.99%+ AMOUNT - ------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 1.99%+ Level 3 Communications, Inc., CLB, 6.000%, due 03/15/2010(2).............. $ 4,600,000 2,949,750 ------------ MEDIA -- 0.00%+ Adelphia Communications Corporation, 6.000%, due 2/15/2006, Acquired on 2/10/2004 at $123,000 (Default Effective 8/12/2002)*.................. 200,000 2,750 ------------ TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $2,727,911)...................... 2,952,500 ------------ CORPORATE BONDS -- 2.13%+ - ------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 2.13%+ Level 3 Communications, Inc., CLB, 12.875%, due 03/15/2010(+)(2) (cost $3,648,162)...................... 3,600,000 3,168,000 ------------ RIGHTS -- 2.63%+ SHARES - ------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES -- 2.63%+ Comdisco Holding Company, Inc. Expiration Date: 12/31/2050, Strike Price $1.00# (cost $3,253,775)...................... 12,240,699 3,917,024 ------------
See Notes to the Financial Statements. 68 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
RIGHTS -- 2.63%+ SHARES - ------------------------------------------------------------------------ PUT OPTIONS PURCHASED -- 0.00%+ CONTRACTS VALUE - ------------------------------------------------------------------------ Internet HOLDRs Trust Expiration: January, 2006, Exercise Price: $60.00....................... 7 $ 105 Expiration: January, 2007, Exercise Price: $70.00....................... 7 5,005 ------------ TOTAL PUT OPTIONS PURCHASED (cost $15,715)......................... 5,110 ------------ PRINCIPAL SHORT-TERM INVESTMENTS -- 1.18%+ AMOUNT - ------------------------------------------------------------------------ INVESTMENT COMPANIES -- 0.26%+ First American Prime Obligations Fund -- Class I................................ 381,838 381,838 ------------ US GOVERNMENT AGENCY ISSUES -- 0.92%+ Federal Home Loan Bank Discount Note, 2.650%, due 1/3/2006................... $ 1,372,000 1,371,768 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $1,753,606)...................... 1,753,606 ------------ INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 11.24%+ SHARES - ------------------------------------------------------------------------ INVESTMENT COMPANIES -- 0.00%+ Merrill Lynch Premier Institutional Fund................................... 36 36 ------------
See Notes to the Financial Statements. 69 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 11.24%+ SHARES VALUE - ------------------------------------------------------------------------ REPURCHASE AGREEMENTS -- 11.24%+ CS First Boston Repurchase Agreement, 4.250%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $2,206,953.............. $ 2,205,911 $ 2,205,911 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $919,569................ 919,130 919,130 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $735,655................ 735,304 735,304 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $6,436,981.............. 6,433,907 6,433,907 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $2,758,706.............. 2,757,388 2,757,388 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $3,678,275.............. 3,676,518 3,676,518 ------------ 16,728,158 ------------ TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $16,728,194)..................... 16,728,194 ------------ TOTAL INVESTMENTS -- 110.45%+ (COST $152,906,144).................... $164,351,449 ============
- ------------------------- * -- Non-income producing security. (+) -- Security has a stepped rate. The rate listed is as of December 31, 2005. + -- Calculated as a percentage of net assets. # -- Contingent value right (contingent upon profitability of company). ADR -- American Depository Receipts. CLB -- Callable Security. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at December 31, 2005. Total loaned securities had a market value of $14,312,196 at December 31, 2005. (3) -- See Repurchase Agreements disclosure in the Notes to Financial Statements for the Kinetics Portfolios Trust. See Notes to the Financial Statements. 70 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- December 31, 2005
COMMON STOCKS -- 82.02%+ SHARES VALUE - ------------------------------------------------------------------------- AEROSPACE & DEFENSE -- 5.88%+ SI International, Inc.*....................... 7,500 $ 229,275 ---------- CAPITAL MARKETS -- 4.15%+ Nasdaq-100 Index Tracking Stock(1)............ 4,000 161,680 ---------- COMMERCIAL SERVICES & SUPPLIES -- 6.35%+ Comdisco Holding Company, Inc. ............... 9,300 176,700 Deluxe Corporation............................ 1,100 33,154 John H. Harland Company....................... 1,000 37,600 ---------- 247,454 ---------- COMPUTERS & PERIPHERALS -- 8.32%+ ActivCard Corporation*........................ 7,500 26,175 M-Systems Flash Disk Pioneers Ltd.*........... 9,000 298,080 ---------- 324,255 ---------- DERIVATIVE EXCHANGES -- 3.30%+ Chicago Mercantile Exchange Holdings Inc...... 200 73,498 International Securities Exchange, Inc.*...... 2,000 55,040 ---------- 128,538 ---------- DIVERSIFIED FINANCIAL SERVICES -- 2.86%+ eSPEED, Inc. -- Class A*...................... 10,000 77,100 MarketAxess Holdings, Inc.*................... 3,000 34,290 ---------- 111,390 ---------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 7.86%+ IDT Corporation*.............................. 5,300 61,268 IDT Corporation -- Class B*................... 5,300 62,010 Lynch Interactive Corporation*................ 61 132,614 Warwick Valley Telephone Company.............. 1,200 22,908 XO Communications, Inc.*...................... 15,000 27,300 ---------- 306,100 ---------- INSURANCE -- 4.40%+ Fidelity National Financial, Inc.............. 4,173 153,525 Fidelity National Title Group, Inc. -- Class A........................................... 730 17,775 ---------- 171,300 ----------
See Notes to the Financial Statements. 71 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------- INTERNET SOFTWARE & SERVICES -- 10.84%+ Digital River, Inc.*.......................... 1,000 $ 29,740 Imergent, Inc.*(2)............................ 2,500 16,500 Netease.com, Inc. ADR*(2)..................... 240 13,479 NetRatings, Inc.*............................. 6,700 82,611 SINA Corp*.................................... 500 12,080 Sohu.com, Inc.*............................... 300 5,502 Websense, Inc.*............................... 4,000 262,560 ---------- 422,472 ---------- IT SERVICES -- 0.72%+ Lionbridge Technologies, Inc.*................ 4,000 28,080 ---------- MEDIA -- 25.42%+ Discovery Holding Company -- Class A*......... 50 758 Gemstar-TV Guide International, Inc.*......... 5,000 13,050 Groupe Bruxelles Lambert S.A. ................ 1,600 156,937 Interactive Data Corporation.................. 13,000 295,230 Liberty Global, Inc. -- Class A*.............. 30 675 Liberty Global, Inc. -- Series C*............. 30 636 Liberty Media Corporation -- Class A*......... 504 3,966 Naspers Limited ADR(2)........................ 9,470 170,460 Navarre Corporation*(2)....................... 5,000 27,650 PrimaCom AG ADR*.............................. 4,750 17,219 ProQuest Company*............................. 3,000 83,730 RCN Corporation*.............................. 6,545 153,480 Valassis Communications, Inc.*................ 2,300 66,861 ---------- 990,652 ---------- SOFTWARE -- 0.63%+ FactSet Research Systems, Inc................. 600 24,696 ---------- U.S. EQUITY EXCHANGES -- 1.28%+ Archipelago Holdings Inc.*(2)................. 1,000 49,770 ---------- WIRELESS TELECOMMUNICATION SERVICES -- 0.02%+ Sunshine PCS Corporation -- Class A*.......... 6,000 675 ---------- TOTAL COMMON STOCKS (cost $2,439,081)........................... 3,196,337 ----------
See Notes to the Financial Statements. 72 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------- PREFERRED STOCKS -- 0.03%+ SHARES VALUE - ------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.03%+ PTV, Inc. -- Series A, CLB, 10.000% (cost $3,774)............................... 487 $ 1,023 ---------- CORPORATE BONDS -- PRINCIPAL CONVERTIBLE -- 3.70%+ AMOUNT - ------------------------------------------------------------------------- SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 3.70%+ Conexant Systems, Inc., CLB, 4.000%, due 2/1/2007 (cost $131,620)........ $150,000 144,187 ---------- CORPORATE BONDS -- 5.08%+ - ------------------------------------------------------------------------- DIVERSIFIED TELECOMMUNICATION SERVICES -- 5.08%+ Level 3 Communications, Inc., CLB, 12.875%, due 03/15/2010(+)(2) (cost $204,998)................................... 225,000 198,000 ---------- RIGHTS -- 4.77%+ SHARES - ------------------------------------------------------------------------- COMMERCIAL SERVICES & SUPPLIES -- 4.77%+ Comdisco Holding Company, Inc., Expiration Date: 12/31/2050, Strike Price $1.00# (cost $245,273)...................... 581,000 185,920 ---------- PUT OPTIONS PURCHASED -- 0.26%+ CONTRACTS - ------------------------------------------------------------------------- Nasdaq-100 Index Tracking Stock Expiration: January, 2007, Exercise Price: $38.625.................................. 28 4,760 Expiration: January, 2007, Exercise Price: $39.625.................................. 28 5,460 ---------- TOTAL PUT OPTIONS PURCHASED (cost $22,568).............................. 10,220 ----------
See Notes to the Financial Statements. 73 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued) /PRINCIPALSHORT-TERM INVESTMENTS -- 4.12%+ AMOUNT VALUE - ------------------------------------------------------------------------------------- VARIABLE RATE DEMAND NOTES** -- 4.12%+ American Family, 4.025%.................................. $ 45,643 $ 45,643 U.S. Bank, N.A., 4.130%.................................. 51,092 51,092 Wisconsin Corporate Central Credit Union, 4.050%......... 63,931 63,931 ------------- TOTAL SHORT-TERM INVESTMENTS (cost $160,666)........................................ 160,666 ------------- INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 9.89%+ SHARES - ------------------------------------------------------------------------------------- INVESTMENT COMPANIES -- 0.00%+ Merrill Lynch Premier Institutional Fund................. 1 1 ------------- REPURCHASE AGREEMENTS -- 9.89%+ CS First Boston Repurchase Agreement, 4.250%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $50,848................................. $ 50,824 50,824 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $21,187................................. 21,177 21,177 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $16,949................................. 16,941 16,941 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $148,309................................ 148,238 148,238 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $63,561................................. 63,531 63,531 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $84,747................................. 84,707 84,707 ------------- 385,418 ------------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $385,419)........................................ 385,419 ------------- TOTAL INVESTMENTS -- 110.19%+ (COST $3,593,399)...................................... $ 4,281,772 =============
- ------------------------- * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of December 31, 2005. See Notes to the Financial Statements. 74 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued) (+) -- Security has a stepped rate. The rate listed is as of December 31, 2005. + -- Calculated as a percentage of net assets. # -- Contingent value right (contingent upon profitability of company). ADR -- American Depository Receipts. CLB -- Callable Security. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at December 31, 2005. Total loaned securities had a market value of $330,145 at December 31, 2005. (3) -- See Repurchase Agreements disclosure in the Notes to Financial Statements for the Kinetics Portfolios Trust. See Notes to the Financial Statements. 75 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005
COMMON STOCKS -- 88.39%+ SHARES VALUE - -------------------------------------------------------------------- AEROSPACE & DEFENSE -- 0.98%+ General Dynamics Corporation............ 200 $ 22,810 CACI International, Inc. -- Class A*.... 90,000 5,164,200 ------------ 5,187,010 ------------ AIRLINES -- 0.07%+ China Eastern Airlines Corporation Limited ADR........................... 25,000 390,250 ------------ ASIAN EXCHANGES -- 2.57%+ Hong Kong Exchanges & Clearing Limited............................... 3,000,000 12,439,303 Osaka Securities Exchange Co., Ltd...... 100 627,464 Singapore Exchange Limited.............. 300,000 523,261 ------------ 13,590,028 ------------ ASSET MANAGEMENT -- 4.59%+ Ameriprise Financial, Inc............... 80 3,280 Brookfield Asset Management Inc -- Class A..................................... 356,000 17,917,480 Eaton Vance Corp........................ 7,200 196,992 Legg Mason, Inc......................... 32,000 3,830,080 Power Corporation of Canada............. 86,000 2,342,260 ------------ 24,290,092 ------------ AUTO COMPONENTS -- 1.36%+ Toyota Industries Corporation........... 200,000 7,190,401 ------------ AUTOMOBILES -- 0.00%+ Great Wall Automobile Holdings Company, Limited -- Class H.................... 20,000 6,578 ------------ BEVERAGES -- 0.17%+ Anheuser-Busch Companies, Inc. ......... 2,400 103,104 Brown-Forman Corporation -- Class B..... 3,000 207,960 Constellation Brands, Inc. -- Class A*.................................... 600 15,738 Diageo plc ADR.......................... 4,000 233,200 Pernod Ricard SA........................ 1,200 209,407 Remy Cointreau SA....................... 2,400 113,654 Taittinger SA........................... 25 9,952 ------------ 893,015 ------------
See Notes to the Financial Statements. 76 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- BROKERAGE & INVESTMENT BANKING -- 0.20%+ The Bear Stearns Companies Inc. ........ 2,000 $ 231,060 Greenhill & Co., Inc. .................. 6,400 359,424 ICAP plc................................ 48,000 334,463 Lazard Ltd -- Class A................... 2,000 63,800 Nomura Holdings, Inc. ADR............... 4,000 76,880 Refco Inc.*............................. 24,000 10,560 ------------ 1,076,187 ------------ CHEMICALS -- 0.01%+ Novozymes A/S -- Class B................ 200 10,949 Potash Corporation of Saskatchewan Inc. ................................. 400 32,088 ------------ 43,037 ------------ COMMERCIAL BANKS -- 3.44%+ Fifth Third Bancorp..................... 4,000 150,880 HDFC Bank Ltd. ADR...................... 4,400 223,960 ICICI Bank Limited ADR.................. 9,000 259,200 M&T Bank Corporation.................... 124,000 13,522,200 State Bank of India GDR................. 14,000 707,000 Wells Fargo and Company................. 53,000 3,329,990 ------------ 18,193,230 ------------ COMMERCIAL SERVICES & SUPPLIES -- 0.06%+ Acco Brands Corporation*................ 658 16,121 Equifax Inc............................. 100 3,802 FTI Consulting, Inc.*................... 10,000 274,400 ------------ 294,323 ------------ CONSUMER FINANCE -- 0.64%+ American Express Company................ 400 20,584 The Student Loan Corporation............ 16,000 3,347,680 ------------ 3,368,264 ------------ DERIVATIVE EXCHANGES -- 3.21%+ CBOT Holdings, Inc. -- Class A*(2)...... 56,000 5,250,560 Chicago Mercantile Exchange Holdings Inc................................... 24,000 8,819,760 International Securities Exchange, Inc.*................................. 106,000 2,917,120 ------------ 16,987,440 ------------
See Notes to the Financial Statements. 77 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- DIVERSIFIED CONSUMER SERVICES -- 0.37%+ H&R Block, Inc.......................... 80,000 $ 1,964,000 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.78%+ Pargesa Holding AG -- Class B........... 48,000 4,098,474 ------------ DIVERSIFIED GAS -- 1.05%+ The Williams Companies, Inc............. 240,000 5,560,800 ------------ DIVERSIFIED TELECOMMUNICATION SERVICES-- 2.87%+ Leucadia National Corporation........... 320,000 15,187,200 ------------ ELECTRIC UTILITIES -- 9.83%+ Allegheny Energy, Inc.*................. 672,000 21,268,800 Huaneng Power International, Inc. ADR... 230,000 6,028,300 Korea Electric Power Corporation ADR.... 606,000 11,810,940 Sierra Pacific Resources*............... 990,000 12,909,600 ------------ 52,017,640 ------------ EUROPEAN EXCHANGES -- 1.65%+ Deutsche Boerse AG...................... 18,000 1,841,619 Euronext NV............................. 58,000 3,021,298 London Stock Exchange plc............... 364,857 3,891,942 ------------ 8,754,859 ------------ FOOD PRODUCTS -- 0.88%+ Archer-Daniels-Midland Company.......... 72,000 1,775,520 Bunge Limited........................... 25,400 1,437,894 Cadbury Schweppes PLC ADR............... 4,000 153,160 Dean Foods Company*..................... 30,000 1,129,800 The J.M. Smucker Company................ 1,000 44,000 McCormick & Company, Incorporated....... 1,000 30,920 TreeHouse Foods, Inc.*.................. 3,600 67,392 ------------ 4,638,686 ------------ GAMING -- 1.14%+ Harrah's Entertainment, Inc............. 28,000 1,996,120 Hilton Group plc ADR.................... 8,000 99,846 MGM MIRAGE*............................. 72,000 2,640,240 Wynn Resorts, Limited*(2)............... 24,000 1,316,400 ------------ 6,052,606 ------------
See Notes to the Financial Statements. 78 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- HOTELS RESTAURANTS & LEISURE -- 0.02%+ Carnival Corporation.................... 2,000 $ 106,940 ------------ HOUSEHOLD DURABLES -- 0.04%+ Fortune Brands, Inc. ................... 2,800 218,456 ------------ HOUSEHOLD PRODUCTS -- 0.08%+ Church & Dwight Co., Inc. .............. 12,000 396,360 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 1.60%+ Dynegy Inc. -- Class A*(2).............. 92,000 445,280 TXU Corporation......................... 160,000 8,030,400 ------------ 8,475,680 ------------ INDUSTRIAL CONGLOMERATES -- 0.00%+ Alleghany Corporation*.................. 24 6,816 ------------ INSURANCE -- 10.92%+ Arthur J. Gallagher & Co................ 1,000 30,880 Berkshire Hathaway Inc. -- Class B*..... 4,900 14,383,950 Brown & Brown, Inc. .................... 2,400 73,296 China Life Insurance Co., Limited ADR*(2)............................... 1,000 35,280 Fairfax Financial Holdings Limited(2)... 18,800 2,695,168 Fidelity National Financial, Inc. ...... 8,200 301,678 Fidelity National Title Group, Inc. -- Class A............................... 1,435 34,942 Markel Corporation*..................... 12,000 3,804,600 Mercury General Corporation............. 2,000 116,440 Millea Holdings, Inc. ADR............... 4,000 344,200 Montpelier Re Holdings Ltd.(2).......... 192,000 3,628,800 The Progressive Corporation............. 128,000 14,947,840 Wesco Financial Corporation............. 1,700 654,500 White Mountains Insurance Group Ltd..... 30,000 16,756,500 ------------ 57,808,074 ------------ IT SERVICES -- 0.02%+ Automatic Data Processing, Inc.......... 100 4,589 Iron Mountain Incorporated*............. 1,800 75,996 ------------ 80,585 ------------
See Notes to the Financial Statements. 79 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- xMEDIA -- 6.08%+ DreamWorks Animation SKG, Inc.*......... 10,000 $ 245,600 The E.W. Scripps Company -- Class A..... 54,000 2,593,080 Groupe Bruxelles Lambert S.A............ 150,000 14,712,846 Meredith Corporation.................... 2,000 104,680 The New York Times Company -- Class A... 600 15,870 The Walt Disney Company................. 10,650 255,281 The Washington Post Company -- Class B..................................... 18,654 14,270,310 ------------ 32,197,667 ------------ METALS & MINING -- 1.50%+ Anglo American PLC ADR(2)............... 224,000 7,790,720 Cameco Corporation...................... 2,400 152,136 ------------ 7,942,856 ------------ MULTILINE RETAIL -- 2.05%+ Sears Holdings Corporation*............. 94,000 10,859,820 ------------ MULTI-UTILITIES -- 4.14%+ CenterPoint Energy, Inc................. 900,000 11,565,000 Reliant Energy Inc.*.................... 900,000 9,288,000 Sempra Energy........................... 24,000 1,076,160 ------------ 21,929,160 ------------ OIL & GAS -- 0.02%+ Norsk Hydro ASA ADR..................... 1,000 103,180 ------------
See Notes to the Financial Statements. 80 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- OIL, GAS & CONSUMABLE FUELS -- 14.15%+ Canadian Natural Resources Ltd.......... 8,000 $ 396,960 Canadian Oil Sands Trust................ 120,000 12,943,200 CNOOC Limited ADR....................... 80,000 5,437,600 El Paso Corporation..................... 1,110,000 13,497,600 EnCana Corporation...................... 82,000 3,703,120 Imperial Oil Ltd. ...................... 36,000 3,585,600 Nexen Inc. ............................. 66,000 3,143,580 Petro-Canada............................ 72,000 2,886,480 PetroChina Company Limited ADR.......... 40,000 3,278,400 Petroleo Brasileiro S.A. ADR............ 4,000 285,080 Shell Canada Limited.................... 112,000 4,051,443 Statoil ASA ADR......................... 10,000 229,600 Suncor Energy, Inc...................... 328,000 20,706,640 Western Oil Sands Inc. -- Class A*...... 30,000 717,708 ------------ 74,863,011 ------------ OTHER EXCHANGES -- 0.46%+ Australian Stock Exchange Limited....... 18,000 428,864 TSX Group Inc. ......................... 50,000 2,014,280 ------------ 2,443,144 ------------ PAPER & FOREST PRODUCTS -- 0.01%+ Pope Resources, L.P..................... 1,800 55,836 ------------ PHARMACEUTICALS -- 0.02%+ Novo-Nordisk A/S ADR.................... 2,000 112,680 ------------ PUBLISHING -- 0.31%+ Dow Jones & Company, Inc................ 100 3,549 John Wiley & Sons, Inc. -- Class B...... 2,000 77,950 Moody's Corporation..................... 25,300 1,553,926 ------------ 1,635,425 ------------ REAL ESTATE -- 3.46%+ American Real Estate Partners, L.P. .... 200,000 7,710,000 Forest City Enterprises, Inc. -- Class A..................................... 184,000 6,979,120 The St. Joe Company..................... 3,600 241,992 Texas Pacific Land Trust(2)............. 17,200 2,562,800 Vornado Realty Trust.................... 10,000 834,700 ------------ 18,328,612 ------------
See Notes to the Financial Statements. 81 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - -------------------------------------------------------------------- SPECIALISTS -- 1.26%+ LaBranche & Co Inc.*(2)................. 660,000 $ 6,672,600 ------------ SPECIALTY RETAIL -- 0.01%+ Tiffany & Co. .......................... 1,000 38,290 ------------ TOBACCO -- 0.27%+ Altria Group, Inc....................... 18,000 1,344,960 British American Tobacco p.l.c. ADR..... 2,000 90,080 ------------ 1,435,040 ------------ TRANSPORTATION INFRASTRUCTURE -- 0.24%+ Anhui Expressway Co., Ltd. -- Class H... 660,000 319,204 Beijing Capital International Airport Company Limited -- Class H............ 100,000 45,785 Jiangsu Expressway Company Ltd. -- Class H..................................... 200,000 112,850 Shenzhen Expressway Company Limited -- Class H............................... 1,200,000 394,653 Zhejiang Expressway Co., Ltd. -- Class H..................................... 660,000 408,582 ------------ 1,281,074 ------------ U.S. EQUITY EXCHANGES -- 5.84%+ Archipelago Holdings Inc.*(2)........... 366,000 18,215,820 Nasdaq Stock Market Inc.*............... 360,000 12,664,800 ------------ 30,880,620 ------------ WIRELESS TELECOMMUNICATION SERVICES -- 0.02%+ China Mobile (Hong Kong) Limited ADR.... 4,000 96,160 ------------ TOTAL COMMON STOCKS (cost $404,420,249)................... 467,752,206 ------------ CORPORATE BONDS -- PRINCIPAL CONVERTIBLE -- 0.03%+ AMOUNT - -------------------------------------------------------------------- xINDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.03%+ Calpine Corporation, CLB, 4.750%, due 11/15/2023, Acquired on 11/30/05- 12/02/05 at $180,150 (Default Effective 12/20/2005)* (cost $181,238)....................... $ 700,000 182,000 ------------
See Notes to the Financial Statements. 82 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued) CALL OPTIONS PURCHASED -- 0.07%+ CONTRACTS VALUE - -------------------------------------------------------------------- xTXU Corporation Expiration: January, 2007, Exercise Price: $22.50 (cost $143,073)....................... 142 $ 394,760 ------------ SHORT-TERM INVESTMENTS -- PRINCIPAL 11.32%+ AMOUNT - -------------------------------------------------------------------- xUS GOVERNMENT AGENCY ISSUES -- 10.99%+ Federal Home Loan Bank Discount Note, 2.650%, due 1/3/2006.................. $58,200,000 58,190,138 ------------ VARIABLE RATE DEMAND NOTES** -- 0.33%+ American Family, 4.025%................. 578 578 U.S. Bank, N.A., 4.130%................. 1,723,566 1,723,566 Wisconsin Corporate Central Credit Union, 4.050%......................... 2,707 2,707 ------------ 1,726,851 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $59,916,989).................... 59,916,989 ------------ INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 9.71%+ SHARES - -------------------------------------------------------------------- xINVESTMENT COMPANIES -- 0.00%+ Merrill Lynch Premier Institutional Fund.................................. 109 109 ------------
See Notes to the Financial Statements. 83 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 9.71%+ SHARES VALUE - -------------------------------------------------------------------- xREPURCHASE AGREEMENTS -- 9.71%+ CS First Boston Repurchase Agreement, 4.250%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $6,778,110............. $ 6,774,911 $ 6,774,911 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $2,824,229............. 2,822,880 2,822,880 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $2,259,383............. 2,258,304 2,258,304 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $19,769,599............ 19,760,158 19,760,158 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $8,472,685............. 8,468,639 8,468,639 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $11,296,914............ 11,291,519 11,291,519 ------------ 51,376,411 ------------ TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $51,376,520).................... 51,376,520 ------------ TOTAL INVESTMENTS -- 109.52%+ (COST $516,038,069)................... $579,622,475 ============
- --------------- * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of December 31, 2005. + -- Calculated as a percentage of net assets. GDR -- Global Depository Receipts. ADR -- American Depository Receipts. CLB -- Callable Security. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at December 31, 2005. Total loaned securities had a market value of $43,618,328 at December 31, 2005. (3) -- See Repurchase Agreements disclosure in the Notes to Financial Statements for the Kinetics Portfolios Trust. See Notes to the Financial Statements. 84 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- December 31, 2005
COMMON STOCKS -- 97.57%+ SHARES VALUE - ------------------------------------------------------------------------ BIOTECHNOLOGY -- 35.14%+ AEterna Zentaris Inc.*..................... 20,500 $ 103,935 Arena Pharmaceuticals, Inc.*............... 14,000 199,080 AVAX Technologies, Inc.*................... 50,000 12,500 Avigen, Inc.*(2)........................... 21,000 63,630 Biogen Idec, Inc.*......................... 8,250 373,972 Biomira, Inc.*(2).......................... 37,000 51,800 Cambridge Antibody Technology Group PLC ADR*(2).................................. 15,000 180,165 Cell Genesys, Inc.*(2)..................... 14,725 87,319 Chiron Corporation*........................ 19,000 844,740 Cubist Pharmaceuticals, Inc.*.............. 2,000 42,500 CuraGen Corporation*....................... 13,000 40,040 deCODE genetics, Inc.*..................... 11,000 90,860 Dendreon Corporation*...................... 7,000 37,940 EntreMed, Inc.*............................ 11,000 21,340 Favrille Inc.*............................. 10,000 40,500 Genzyme Corporation*....................... 7,038 498,150 Human Genome Sciences, Inc.*............... 17,000 145,520 ImmunoGen, Inc.*........................... 6,000 30,780 Isis Pharmaceuticals, Inc.*................ 5,000 26,200 Isotechnika, Inc.*......................... 15,000 25,162 Maxim Pharmaceuticals, Inc.*............... 10,000 11,000 Medarex, Inc.*............................. 20,000 277,000 MedImmune, Inc.*........................... 29,500 1,033,090 Millennium Pharmaceuticals, Inc.*.......... 30,296 293,871 NeoRx Corporation*......................... 27,000 20,520 Progenics Pharmaceuticals, Inc.*........... 2,200 55,022 QLT Inc.*.................................. 10,000 63,600 Savient Pharmaceuticals Inc.*.............. 34,000 127,160 Serono SA ADR.............................. 12,000 238,320 Sirna Therapeutics, Inc.*.................. 3,491 10,578 Targeted Genetics Corporation*............. 10,000 4,900 Vical Incorporated*........................ 13,500 56,700 ----------- 5,107,894 -----------
See Notes to the Financial Statements. 85 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ ]xCHEMICALS -- 7.80%+ Akzo Nobel N.V. ADR........................ 10,000 $ 460,800 Lonza Group AG............................. 11,000 673,034 ----------- 1,133,834 ----------- HEALTH CARE EQUIPMENT & SUPPLIES -- 0.04%+ Theragenics Corporation*................... 2,000 6,040 ----------- HEALTH CARE PROVIDERS & SERVICES -- 0.36%+ IMPATH Bankruptcy Liquidating Trust -- Class A*................................. 26,000 52,000 ----------- PHARMACEUTICALS -- 54.23%+ Abbott Laboratories........................ 17,000 670,310 Altana AG ADR(2)........................... 14,000 762,580 Antigenics, Inc.*(2)....................... 892 4,246 Bristol-Meyers Squibb Company.............. 15,000 344,700 China Pharmaceutical Group Limited*........ 1,440,000 222,863 Eli Lilly and Company...................... 11,000 622,490 GlaxoSmithKline PLC ADR.................... 22,673 1,144,533 Johnson & Johnson.......................... 7,000 420,700 MGI Pharma, Inc.*.......................... 2,000 34,320 Novartis AG ADR............................ 26,000 1,364,480 Schering AG ADR............................ 14,000 936,740 SuperGen, Inc.*............................ 14,000 70,700 Wyeth...................................... 27,900 1,285,353 ----------- 7,884,015 ----------- TOTAL COMMON STOCKS (cost $15,904,545)....................... 14,183,783 ----------- RIGHTS -- 0.00%+ - ------------------------------------------------------------------------ ]xBIOTECHNOLOGY -- 0.00%+ OSI Pharmaceuticals, Inc.* Expiration Date 6/12/2008, Strike Price $1.00# (cost $0)................................ 13,932 558 -----------
See Notes to the Financial Statements. 86 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued) PRINCIPAL SHORT-TERM INVESTMENTS -- 2.50%+ AMOUNT VALUE - ------------------------------------------------------------------------------------ xVARIABLE RATE DEMAND NOTES** -- 2.50%+ U.S. Bank, N.A., 4.130% (cost $362,903).................................... $ 362,903 $ 362,903 -------------- INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT OR LENDING -- 6.65%+ SHARES - ------------------------------------------------------------------------------------ xINVESTMENT COMPANIES -- 0.00%+ Merrill Lynch Premier Institutional Fund............. 2 2 -------------- REPURCHASE AGREEMENTS -- 6.65%+ CS First Boston Repurchase Agreement, 4.250%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $127,566............................ $ 127,506 127,506 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $53,152............................. 53,127 53,127 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $42,522............................. 42,502 42,502 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $372,069............................ 371,891 371,891 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $159,458............................ 159,382 159,382 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $212,611............................ 212,509 212,509 -------------- 966,917 -------------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $966,919).................................... 966,919 -------------- TOTAL INVESTMENTS -- 106.72%+ (COST $17,234,367)................................. $ 15,514,163 ==============
- --------------- * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of December 31, 2005. + -- Calculated as a percentage of net assets. See Notes to the Financial Statements. 87 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued) # -- Contingent value right (contingent upon profitability of company). ADR -- American Depository Receipts. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at December 31, 2005. Total loaned securities had a market value of $800,488 at December 31, 2005. (3) -- See Repurchase Agreements disclosure in the Notes to Financial Statements for the Kinetics Portfolios Trust. See Notes to the Financial Statements. 88 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005
COMMON STOCKS -- 83.39%+ SHARES VALUE - ------------------------------------------------------------------------ AEROSPACE & DEFENSE -- 3.41%+ Armor Holdings, Inc.*.................... 800 $ 34,120 Bombardier Inc........................... 360,000 854,747 CACI International, Inc. -- Class A*..... 58,000 3,328,040 GenCorp Inc.*............................ 10,000 177,500 ------------ 4,394,407 ------------ AIRLINES -- 1.34%+ China Eastern Airlines Corporation Limited ADR............................ 58,000 905,380 China Southern Airlines Company Limited ADR*(2)................................ 58,000 823,600 ------------ 1,728,980 ------------ ASIAN EXCHANGES -- 1.61%+ Hong Kong Exchanges & Clearing Limited... 500,000 2,073,217 ------------ BEVERAGES -- 0.04%+ Tsingtao Brewery Company Limited -- Class H...................................... 50,000 52,878 ------------ BROKERAGE & INVESTMENT BANKING -- 0.31%+ Greenhill & Co., Inc..................... 7,200 404,352 ------------ CAPITAL MARKETS -- 3.41%+ Calamos Asset Management, Inc. -- Class A...................................... 20,000 629,000 GAMCO Investors, Inc. -- Class A......... 1,000 43,530 Jefferies Group, Inc..................... 1,000 44,980 Nuveen Investments -- Class A............ 24,000 1,022,880 SWS Group, Inc........................... 4,000 83,760 Van der Moolen Holding N.V. ADR.......... 360,217 2,571,949 ------------ 4,396,099 ------------
See Notes to the Financial Statements. 89 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ COMMERCIAL BANKS -- 4.07%+ Banque du Liban et d'Outre-Mer S.A.L. (BLOM) -- Class B GDR*................. 20,000 $ 1,330,000 Cathay General Bancorp................... 12,000 431,280 Center Financial Corporation............. 22,000 553,520 East West Bancorp, Inc. ................. 12,000 437,880 Farmers & Merchants Bank of Long Beach... 12 69,060 First Bank of Delaware*.................. 300,000 969,000 Hanmi Financial Corporation.............. 22,062 394,027 Nara Bancorp, Inc........................ 22,000 391,160 UCBH Holdings, Inc....................... 22,000 393,360 Wilshire Bancorp, Inc.................... 16,000 275,040 ------------ 5,244,327 ------------ COMMERCIAL SERVICES & SUPPLIES -- 2.36%+ Comdisco Holding Company, Inc. .......... 1,000 19,000 Deluxe Corporation....................... 10,000 301,400 FIND/SVP, Inc.*.......................... 10,000 12,900 FTI Consulting, Inc.*.................... 54,000 1,481,760 Loring Ward International Ltd.*.......... 1,000 516 PICO Holdings, Inc.*..................... 25,000 806,500 Ritchie Bros. Auctioneers Incorporated... 10,000 422,500 ------------ 3,044,576 ------------ CONSTRUCTION & ENGINEERING -- 3.68%+ Quanta Services, Inc.*................... 360,000 4,741,200 ------------ DERIVATIVE EXCHANGES -- 2.35%+ International Securities Exchange, Inc.*.................................. 110,000 3,027,200 ------------ DIVERSIFIED CONSUMER SERVICES -- 0.01%+ Sotheby's Holdings, Inc. -- Class A*..... 800 14,688 ------------ DIVERSIFIED FINANCIAL SERVICES -- 0.03%+ IntercontinentalExchange Inc.*........... 1,000 36,350 ------------
See Notes to the Financial Statements. 90 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ DIVERSIFIED TELECOMMUNICATION SERVICES -- 0.31%+ Lynch Interactive Corporation*........... 18 $ 39,132 NeuStar, Inc. -- Class A*................ 1,000 30,490 XO Communications, Inc.*(2).............. 180,000 327,600 ------------ 397,222 ------------ ELECTRIC UTILITIES -- 10.56%+ Allegheny Energy, Inc.*.................. 200,000 6,330,000 China Resources Power Holdings Company Limited................................ 100,000 56,425 Datang International Power Generation Company Limited -- Class H............. 100,000 73,514 Huadian Power International Corporation Limited -- Class H..................... 180,000 45,965 Sierra Pacific Resources*................ 544,000 7,093,760 ------------ 13,599,664 ------------ ENERGY -- 0.92%+ Siem Industries Inc.*.................... 32,000 1,184,000 ------------ GAS UTILITIES -- 1.95%+ Southern Union Company*.................. 106,263 2,510,983 ------------ HOLDING COMPANY -- 0.20%+ BNN Investments Ltd.*.................... 2,600 253,805 ------------ HOTELS RESTAURANTS & LEISURE -- 1.07%+ Triarc Companies, Inc. -- Class A(2)..... 82,000 1,372,680 ------------ HOUSEHOLD DURABLES -- 0.28%+ Jarden Corporation*...................... 12,000 361,800 ------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 1.13%+ Dynegy Inc. -- Class A*(2)............... 300,000 1,452,000 ------------ INDUSTRIAL CONGLOMERATES -- 0.90%+ Alleghany Corporation*................... 4,084 1,159,856 ------------
See Notes to the Financial Statements. 91 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ INSURANCE -- 2.82%+ Covanta Holding Corporation*............. 6,000 $ 90,360 Fairfax Financial Holdings Limited(2).... 2,000 286,720 Montpelier Re Holdings Ltd.(2)........... 80,000 1,512,000 National Western Life Insurance Company -- Class A..................... 1,200 248,292 RLI Corp................................. 8,000 398,960 Safety Insurance Group, Inc. ............ 15,800 637,846 Wesco Financial Corporation.............. 1,000 385,000 Zenith National Insurance Corp........... 1,500 69,180 ------------ 3,628,358 ------------ IT SERVICES -- 1.21%+ Anteon International Corporation*........ 4,000 217,400 ManTech International Corporation -- Class A*............................... 48,000 1,337,280 ------------ 1,554,680 ------------ LEISURE EQUIPMENT & PRODUCTS -- 0.00%+ Steinway Musical Instruments, Inc.*...... 200 5,102 ------------ MACHINERY -- 0.07%+ Oshkosh Truck Corporation................ 2,000 89,180 ------------ MEDIA -- 1.27%+ CCE Spinco, Inc.*........................ 24,000 314,400 Courier Corporation...................... 30,000 1,030,200 Gemstar-TV Guide International, Inc.*.... 36,000 93,960 PrimaCom AG ADR*......................... 54,000 195,750 ------------ 1,634,310 ------------ METALS & MINING -- 1.86%+ Aber Diamond Corporation................. 8,800 324,104 Commercial Metals Company................ 24,000 900,960 Inmet Mining Corporation................. 30,000 761,323 Stillwater Mining Company*............... 36,000 416,520 ------------ 2,402,907 ------------ MULTILINE RETAIL -- 1.04%+ Dillard's, Inc. -- Class A............... 54,000 1,340,280 ------------
See Notes to the Financial Statements. 92 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ MULTI-UTILITIES -- 8.99%+ Aquila, Inc.*............................ 700,000 $ 2,520,000 CMS Energy Corporation*.................. 172,000 2,495,720 Reliant Energy Inc.*..................... 636,000 6,563,520 ------------ 11,579,240 ------------ OIL, GAS & CONSUMABLE FUELS -- 1.11%+ Shell Canada Limited..................... 3,000 108,521 UTS Energy Corporation*.................. 360,000 1,325,476 ------------ 1,433,997 ------------ PAPER & FOREST PRODUCTS -- 0.00%+ Pope Resources, L.P...................... 200 6,204 ------------ PUBLISHING -- 2.62%+ Dex Media, Inc........................... 26,000 704,340 John Wiley & Sons, Inc. -- Class A....... 24,000 936,960 R.H. Donnelley Corporation*.............. 24,000 1,478,880 Value Line, Inc. ........................ 7,200 253,512 ------------ 3,373,692 ------------ REAL ESTATE -- 6.23%+ Alexander's, Inc.*....................... 2,600 638,300 American Real Estate Partners, L.P....... 148,000 5,705,400 Forest City Enterprises, Inc. -- Class A...................................... 10,000 379,300 HomeFed Corporation...................... 200 13,400 SOLIDERE GDR*............................ 800 13,600 Tejon Ranch Co.*......................... 400 15,968 Texas Pacific Land Trust................. 8,400 1,251,600 United Capital Corporation*.............. 400 9,868 ------------ 8,027,436 ------------ ROAD & RAIL -- 0.90%+ Laidlaw International, Inc. ............. 50,000 1,161,500 ------------ SOFTWARE -- 1.06%+ Midway Games Inc.*(2).................... 72,000 1,365,840 ------------ SPECIALISTS -- 5.21%+ LaBranche & Co Inc.*(2).................. 664,000 6,713,040 ------------
See Notes to the Financial Statements. 93 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
SHARES VALUE - ------------------------------------------------------------------------ TOBACCO -- 0.23%+ Vector Group Ltd.(2)..................... 16,164 $ 293,700 ------------ TRANSPORTATION INFRASTRUCTURE -- 0.05%+ Sichuan Expressway Co. Limited -- Class H...................................... 480,000 66,859 ------------ U.S. EQUITY EXCHANGES -- 8.78%+ Archipelago Holdings Inc.*(2)............ 100,000 4,977,000 Nasdaq Stock Market Inc.*................ 180,000 6,332,400 ------------ 11,309,400 ------------ TOTAL COMMON STOCKS (cost $88,376,956)..................... 107,436,009 ------------ CORPORATE BONDS -- PRINCIPAL CONVERTIBLE -- 0.41%+ AMOUNT - ------------------------------------------------------------------------ INDEPENDENT POWER PRODUCERS & ENERGY TRADERS -- 0.06%+ Calpine Corporation, CLB, 4.750%, due 11/15/2023, Acquired on 11/30/05- 12/02/05 at $180,150 (Default Effective 12/20/2005)*........................... $ 300,000 78,000 ------------ INSURANCE -- 0.35%+ Fairfax Financial Holdings Limited 5.000%, due 07/15/2023................. 500,000 445,625 ------------ TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $575,530)........................ 523,625 ------------ RIGHTS -- 1.60%+ SHARES - ------------------------------------------------------------------------ COMMERCIAL SERVICES & SUPPLIES -- 1.60%+ Comdisco Holding Company, Inc. Expiration Date: 12/31/2050, Strike Price $1.00# (cost $2,031,987)...................... 6,438,000 2,060,160 ------------
See Notes to the Financial Statements. 94 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
RIGHTS -- 1.60%+ SHARES - ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS -- PRINCIPAL 14.55%+ AMOUNT VALUE - ------------------------------------------------------------------------ US GOVERNMENT AGENCY ISSUES -- 14.26%+ Federal Home Loan Bank Discount Note, 2.650%, due 1/3/2006................... $18,381,000 $ 18,377,886 ------------ VARIABLE RATE DEMAND NOTES** -- 0.29%+ American Family, 4.025%.................. 2,575 2,575 U.S. Bank, N.A., 4.130%.................. 365,485 365,485 Wisconsin Corporate Central Credit Union, 4.050%................................. 1,249 1,249 ------------ 369,309 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $18,747,195)..................... 18,747,195 ------------ INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT LENDING -- 16.72%+ OR SHARES - ------------------------------------------------------------------------ INVESTMENT COMPANIES -- 0.00%+ Merrill Lynch Premier Institutional Fund................................... 46 46 ------------
See Notes to the Financial Statements. 95 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- December 31, 2005 -- (Continued)
INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM SECURITIES AMOUNT LENDING -- 16.72%+ OR SHARES VALUE - ------------------------------------------------------------------------ REPURCHASE AGREEMENTS -- 16.72%+ CS First Boston Repurchase Agreement, 4.250%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $2,842,190.............. $ 2,840,848 $ 2,840,848 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $1,184,252.............. 1,183,686 1,183,686 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $947,402................ 946,949 946,949 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $8,289,764.............. 8,285,806 8,285,806 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $3,552,757.............. 3,551,060 3,551,060 4.300%, dated 12/30/2005, due 1/3/2006(3) Repurchase price $4,737,009.............. 4,734,747 4,734,747 ------------ 21,543,096 ------------ TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $21,543,142)..................... 21,543,142 ------------ TOTAL INVESTMENTS -- 116.67%+ (COST $131,274,810).................... $150,310,131 ============
- --------------- * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of December 31, 2005. + -- Calculated as a percentage of net assets. # -- Contingent value right (contingent upon profitability of company). GDR -- Global Depository Receipts. ADR -- American Depository Receipts. CLB -- Callable Security. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at December 31, 2005. Total loaned securities had a market value of $17,953,002 at December 31, 2005. (3) -- See Repurchase Agreements disclosure in the Notes to Financial Statements for the Kinetics Portfolios Trust. See Notes to the Financial Statements. 96 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO Portfolio of Investments -- December 31, 2005
PRINCIPAL SHORT-TERM INVESTMENTS -- 100.14%+ AMOUNT VALUE - ---------------------------------------------------------------------- US GOVERNMENT AGENCY ISSUES -- 100.14%+ Federal Home Loan Bank Discount Note 2.650%, due 1/3/2006....................... $1,073,000 $1,072,818 ---------- TOTAL INVESTMENTS -- 100.14%+ (COST $1,072,818).......................... $1,072,818 ==========
- --------------- + -- Calculated as a percentage of net assets. See Notes to the Financial Statements. 97 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Options Written -- December 31, 2005
CALL OPTIONS WRITTEN CONTRACTS VALUE - ----------------------------------------------------------------------- Internet HOLDRs Trust Expiration: January, 2007, Exercise Price: $70.00.......................................... 5 $ 3,000 ------- TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $6,985)...................... $ 3,000 =======
See Notes to the Financial Statements. 98 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Options Written -- December 31, 2005
CALL OPTIONS WRITTEN CONTRACTS VALUE - ----------------------------------------------------------------------- Nasdaq -- 100 Index Tracking Stock Expiration: January, 2007, Exercise Price: $38.625...................................... 20 $10,000 Expiration: January, 2007, Exercise Price: $39.625...................................... 20 8,600 ------- TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $22,479)..................... $18,600 =======
See Notes to the Financial Statements. 99 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES December 31, 2005
THE INTERNET THE INTERNET EMERGING GROWTH PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------- ASSETS: Investments, at value(1) (3)......................... $164,351,449 $4,281,772 Cash................................................. 505,371 4,901 Receivable for contributed capital................... 17,689 2,600 Dividends and interest receivable.................... 773,825 33,464 Investment securities sold........................... 631,417 -- Other assets......................................... 8,840 470 ------------ ---------- Total assets..................................... 166,288,591 4,323,207 ------------ ---------- LIABILITIES: Written options, at value(2)......................... 3,000 18,600 Payable to Custodian................................. -- -- Payable to Adviser................................... 163,144 4,190 Cash payable due to overdraft from securities lending............................................ 1,916,195 44,149 Payable to Trustees and Officers..................... 8,276 214 Payables for collateral received for securities loaned............................................. 14,811,999 341,270 Payable for withdrawn capital........................ 526,110 14,574 Accrued expenses and other liabilities............... 62,751 3,322 ------------ ---------- Total liabilities................................ 17,491,475 426,319 ------------ ---------- Net assets......................................... $148,797,116 $3,896,888 ============ ========== (1) Cost of investments................................ $152,906,144 $3,593,399 ============ ========== (2) Premiums received.................................. $ 6,985 $ 22,479 ============ ========== (3) Includes loaned securities with a market value of................................................... $ 14,312,196 $ 330,145 ============ ==========
See Notes to the Financial Statements. 100 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES -- (CONTINUED) December 31, 2005
THE PARADIGM THE MEDICAL PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------- ASSETS: Investments, at value(1)(2).............................. $579,622,475 $15,514,163 Foreign currencies, at value(3).......................... 18,254 -- Cash..................................................... 691,580 25,596 Receivable for contributed capital....................... 5,041,361 13,174 Dividends and interest receivable........................ 511,915 11,941 Other assets............................................. 7,668 371 ------------ ----------- Total assets......................................... 585,893,253 15,565,245 ------------ ----------- LIABILITIES: Payable to Adviser....................................... 562,406 15,651 Cash payable due to overdraft from securities lending.... 5,885,119 110,760 Payable to Trustees and Officers......................... 11,218 970 Payable for securities purchased......................... 3,380,528 -- Payables for collateral received for securities loaned... 45,491,401 856,159 Payable for withdrawn capital............................ 1,185,902 37,111 Accrued expenses and other liabilities................... 158,286 7,640 ------------ ----------- Total liabilities.................................... 56,674,860 1,028,291 ------------ ----------- Net assets............................................. $529,218,393 $14,536,954 ============ =========== (1) Cost of investments.................................... $516,038,069 $17,234,367 ============ =========== (2) Includes loaned securities with a market value of...... $ 43,618,328 $ 800,488 ============ =========== (3) Cost of foreign currencies............................. $ 19,461 $ -- ============ ===========
See Notes to the Financial Statements. 101 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES -- (CONTINUED) December 31, 2005
THE KINETICS GOVERNMENT THE SMALL CAP MONEY OPPORTUNITIES MARKET PORTFOLIO PORTFOLIO - ------------------------------------------------------------------------------------------ ASSETS: Investments, at value(1)(2)............................... $150,310,131 $1,072,818 Cash...................................................... 142,545 1,016 Receivable for contributed capital........................ 968,686 45 Dividends and interest receivable......................... 255,313 -- Other assets.............................................. 2,494 3 ------------ ---------- Total assets.......................................... 151,679,169 1,073,882 ------------ ---------- LIABILITIES: Payable to Adviser........................................ 135,735 461 Cash payable due to overdraft from securities lending..... 2,467,741 -- Payable to Trustees and Officers.......................... 3,048 65 Payable for securities purchased.......................... 998,229 -- Payables for collateral received for securities loaned.... 19,075,401 -- Payable for withdrawn capital............................. 120,916 30 Accrued expenses and other liabilities.................... 42,207 1,965 ------------ ---------- Total liabilities..................................... 22,843,277 2,521 ------------ ---------- Net assets.............................................. $128,835,892 $1,071,361 ============ ========== (1) Cost of investments..................................... $131,274,810 $1,072,818 ============ ========== (2) Includes loaned securities with a market value of....... $ 17,953,002 -- ============ ==========
See Notes to the Financial Statements. 102 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS For the Year Ended December 31, 2005
THE INTERNET THE INTERNET EMERGING GROWTH PORTFOLIO PORTFOLIO - ---------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+............................................ $ 2,742,601 $169,444 Interest.............................................. 1,779,256 70,973 Income from securities lending........................ 163,284 3,603 ------------ -------- Total investment income......................... 4,685,141 244,020 ------------ -------- EXPENSES: Investment advisory fees.............................. 2,089,645 50,562 Administration fees................................... 167,677 3,955 Professional fees..................................... 35,985 1,782 Fund accounting fees.................................. 46,094 3,710 Trustees and Officers' fees and expenses.............. 32,488 716 Custodian fees and expenses........................... 30,664 9,129 Other expenses........................................ 20,456 414 ------------ -------- Total expenses.................................. 2,423,009 70,268 Expense reduction*.............................. (6,529) (606) ------------ -------- Net expenses.................................... 2,416,480 69,662 ------------ -------- Net investment income................................... 2,268,661 174,358 ------------ -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments and foreign currency.................... (7,612,388) (20,871) Written option contracts expired or closed.......... 309,768 -- Net change in unrealized appreciation (depreciation) of: Investments and foreign currency.................... 1,680,496 (51,511) Written option contracts............................ (297,218) 4,440 ------------ -------- Net loss on investments................................. (5,919,342) (67,942) ------------ -------- Net increase (decrease) in net assets resulting from operations............................................ $ (3,650,681) $106,416 ============ ======== + Net of Foreign Taxes Withheld of:..................... $ 20,087 $ 492 ============ ========
- ------------------ * See "Expense Reduction" in the Notes to the Financial Statements. See Notes to the Financial Statements. 103 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS -- (CONTINUED) For the Year Ended December 31, 2005
THE PARADIGM THE MEDICAL PORTFOLIO PORTFOLIO - --------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+................................................ $ 3,104,742 $ 217,177 Interest.................................................. 1,327,159 2,115 Income from securities lending............................ 21,586 2,909 ----------- ---------- Total investment income............................. 4,453,487 222,201 ----------- ---------- EXPENSES: Investment advisory fees.................................. 3,645,672 207,698 Administration fees....................................... 287,965 16,710 Professional fees......................................... 62,272 4,055 Fund accounting fees...................................... 74,383 8,159 Trustees' and Officers' fees and expenses................. 45,377 2,721 Custodian fees and expenses............................... 114,677 8,418 Other expenses............................................ 7,490 2,210 ----------- ---------- Total expenses...................................... 4,237,836 249,971 Expense reduction*.................................. (146,440) (2,958) ----------- ---------- Net expenses........................................ 4,091,396 247,013 ----------- ---------- Net investment income (loss).............................. 362,091 (24,812) ----------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on: Investments and foreign currency........................ 273,557 1,812,227 Written option contracts expired or closed.............. -- 83,698 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency........................ 37,043,510 (1,972,626) Written option contracts................................ -- (80,072) ----------- ---------- Net gain (loss) on investments.............................. 37,317,067 (156,773) ----------- ---------- Net increase (decrease) in net assets resulting from operations................................................ $37,679,158 $ (181,585) =========== ========== + Net of Foreign Taxes Withheld of:......................... $ 191,067 $ 20,463 =========== ==========
- ------------------ * See "Expense Reduction" in the Notes to Financial Statements. See Notes to the Financial Statements. 104 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS -- (CONTINUED) For the Year Ended December 31, 2005
THE KINETICS THE SMALL CAP GOVERNMENT OPPORTUNITIES MONEY PORTFOLIO MARKET PORTFOLIO - ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+........................................... $ 1,056,061 $ -- Interest............................................. 410,917 33,901 Income from securities lending....................... 23,392 -- ----------- ------- Total investment income........................ 1,490,370 33,901 ----------- ------- EXPENSES: Investment advisory fees............................. 960,589 5,746 Administration fees.................................. 76,939 1,172 Professional fees.................................... 17,609 22 Fund accounting fees................................. 31,231 405 Trustees and Officers' fees and expenses............. 12,842 204 Custodian fees and expenses.......................... 35,268 7,730 Other expenses....................................... 2,250 488 ----------- ------- Total expenses................................. 1,136,728 15,767 Expense reduction*............................. (82,370) -- ----------- ------- Net expenses................................... 1,054,358 15,767 ----------- ------- Net investment income.................................. 436,012 18,134 ----------- ------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized loss on: Investments and foreign currency................... (1,152,617) -- Net change in unrealized appreciation of: Investments and foreign currency................... 10,833,455 -- ----------- ------- Net gain on investments................................ 9,680,838 -- ----------- ------- Net increase in net assets resulting from operations... $10,116,850 $18,134 =========== ======= + Net of Foreign Taxes Withheld of:.................... $ 5,066 $ -- =========== =======
- ------------------ * See "Expense Reduction" in the Notes to Financial Statements. See Notes to the Financial Statements. 105 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS
THE INTERNET THE INTERNET PORTFOLIO EMERGING GROWTH PORTFOLIO --------------------------- --------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income........ $ 2,268,661 $ 2,804,751 $ 174,358 $ 121,997 Net realized gain (loss) on sale of investments, foreign currency and written options............ (7,302,620) 33,312,086 (20,871) 128,613 Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options.................... 1,383,278 (16,515,271) (47,071) 103,782 ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations........ (3,650,681) 19,601,566 106,416 354,392 ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions................ 195,954 26,839,732 646,599 1,049,978 Withdrawals.................. (50,457,661) (75,601,294) (1,449,775) (1,462,409) ------------ ------------ ----------- ----------- Net decrease in net assets resulting from beneficial interest transactions........... (50,261,707) (48,761,562) (803,176) (412,431) ------------ ------------ ----------- ----------- Total increase (decrease) in net assets................. (53,912,388) (29,159,996) (696,760) (58,039) NET ASSETS: Beginning of year............ 202,709,504 231,869,500 4,593,648 4,651,687 ------------ ------------ ----------- ----------- End of year.................. $148,797,116 $202,709,504 $ 3,896,888 $ 4,593,648 ============ ============ =========== ===========
See Notes to the Financial Statements. 106 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE PARADIGM PORTFOLIO THE MEDICAL PORTFOLIO --------------------------- --------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - --------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss).... $ 362,091 $ (70,003) $ (24,812) $ (72,336) Net realized gain on sale of investments, foreign currency and written options........... 273,557 4,037,192 1,895,925 547,201 Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options........... 37,043,510 13,990,179 (2,052,698) 1,117,954 ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from operations................ 37,679,158 17,957,368 (181,585) 1,592,819 ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions................... 408,538,810 58,008,906 165,335 2,545,683 Withdrawals..................... (42,407,006) (23,413,796) (5,778,914) 8,320,935 ------------ ------------ ----------- ----------- Net increase (decrease) in net assets resulting from beneficial interest transactions.............. 366,131,804 34,595,110 (5,613,579) (5,775,252) ------------ ------------ ----------- ----------- Total increase (decrease) in net assets........................ 403,810,962 52,552,478 (5,795,164) (4,182,433) NET ASSETS: Beginning of year............... 125,407,431 72,854,953 20,332,118 24,514,551 ------------ ------------ ----------- ----------- End of year..................... $529,218,393 $125,407,431 $14,536,954 $20,332,118 ============ ============ =========== ===========
See Notes to the Financial Statements. 107 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
THE SMALL CAP THE KINETICS GOVERNMENT OPPORTUNITIES PORTFOLIO MONEY MARKET PORTFOLIO --------------------------- --------------------------- FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2005 2004 - ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income......... $ 436,012 $ 426,516 $ 18,134 $ 3,582 Net realized gain (loss) on sale of investments, foreign currency and written options..................... (1,152,617) 1,993,213 0 0 Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options..................... 10,833,455 2,368,917 0 0 ------------ ------------ ---------- ------------ Net increase in net assets resulting from operations.............. 10,116,850 4,788,646 18,134 3,582 ------------ ------------ ---------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions................. 91,619,332 27,678,584 383,201 22,191,434 Withdrawals................... (11,574,985) (19,582,069) (511,184) (23,938,932) ------------ ------------ ---------- ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions............ 80,044,347 8,096,515 (127,983) (1,747,498) ------------ ------------ ---------- ------------ Total increase (decrease) in net assets.................. 90,161,197 12,885,161 (109,849) (1,743,916) NET ASSETS: Beginning of year............. 38,674,695 25,789,534 1,181,210 2,925,126 ------------ ------------ ---------- ------------ End of year................... $128,835,892 $38,674,695 $1,071,361 $ 1,181,210 ============ ============ ========== ============
See Notes to the Financial Statements. 108 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS December 31, 2005 1. ORGANIZATION The Kinetics Portfolios Trust (the "Trust") was organized as a Delaware Statutory Trust on March 14, 2000 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its beneficial interests in series, each series representing a distinct portfolio with its own investment objectives and policies. The series currently authorized are The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, and The Kinetics Government Money Market Portfolio (the "Master Portfolios"). Pursuant to the 1940 Act, the Master Portfolios, with the exception of The Kinetics Government Money Market Portfolio, are "non-diversified" series of the Trust. Each of the Master Portfolios commenced operations on April 28, 2000. Each Master Portfolio is a Master Investment Portfolio in a master-feeder fund structure. Each Master Portfolio has multiple feeder funds invested in the Master Portfolio. By contributing assets to the Master Portfolio, the feeder funds receive a beneficial interest in the Master Portfolio. The Master Portfolio then invests the contributed assets in portfolio securities and allocates income, gains (losses) and expenses to the feeder funds based on the funds' proportionate interest in the Master Portfolio. Each of the Master Portfolios, with the exception of The Kinetics Government Money Market Portfolio, seeks to provide investors with long-term capital growth. The Internet Portfolio invests primarily in the equity securities of U.S. and foreign companies engaged in the Internet and Internet-related activities. The Internet Emerging Growth Portfolio invests primarily in the equity securities of small and medium capitalization U.S. and foreign growth emerging companies engaged in the Internet and Internet-related activities. The Paradigm Portfolio invests primarily in the equity securities of U.S. and foreign companies that the investment adviser believes are undervalued and that have high returns on equity and are well positioned to reduce their costs, extend the reach of their distribution channels and experience significant growth in revenues. The Medical Portfolio invests primarily in the equity securities of U.S. and foreign companies engaged in medical research, pharmaceutical treatments and related medical technology with a focus on companies engaged in cancer research and drug development. The Small Cap Opportunities Portfolio invests primarily in the equity securities of U.S. and foreign small capitalization companies that provide attractive valuation 109 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 opportunities due to special situations such as lack of institutional ownership, lack of significant analyst coverage or companies with sound fundamentals that have experienced a short-term earnings shortfall. The Kinetics Government Money Market Portfolio seeks to provide investors with current income consistent with the preservation of capital and maintenance of liquidity by investing in money market instruments issued by the U.S. Government, its agencies or instrumentalities. 2. SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION Master Portfolio securities (other than Government) that are listed on a U.S. securities exchange for which market quotations are readily available are valued at the last quoted sale price on the day the valuation is made. Price information on listed securities is taken from the exchange where the security is primarily traded. All equity securities that are traded using the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") are valued using the NASDAQ Official Closing Price ("NOCP"). In the event market quotations are not readily available or if events occur that may materially affect the value of a particular security between the time trading ends on a particular security and the close of regular trading on the NYSE, "fair value" will be determined. Purchased 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 mean of the most recent bid and asked prices. 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. Investments in The Kinetics Government Money Market Portfolio and instruments purchased with remaining maturities of 60 days or less are valued at amortized cost, which approximates 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 Trustees of the Master Portfolios. At December 31, 2005, there were no fair valued securities held by the Master Portfolios. 110 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 REPURCHASE AGREEMENTS Each Master Portfolio may enter into repurchase agreements with banks that are members of the Federal Reserve System or securities dealers who are members of a national securities exchange or are primary dealers in U.S. Government Securities. In connection with transactions in repurchase agreements, it is the Trust's policy that the Master Portfolio receive, as collateral, securities whose market value, including accrued interest, at all times will be at least equal to 100% of the amount invested by the Master Portfolio in each repurchase agreement. If the seller defaults, and the value of the collateral declines, realization of the collateral by the Master Portfolio may be delayed or limited. At December 31, 2005 the Master Portfolios, with the exception of the Kinetics Government Money Market Portfolio, received, as collateral, securities with a total market value of $95,206,593. The detailed list of the securities received as collateral is listed below. CS First Boston Repurchase Agreement, 4.250%, due 1/3/2006, par value $12,000,000 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ----------- Government National Mortgage Association, Series 2005-17, Class SL, 2.330%, 7/20/2034............................... $ 5,511,944 Government National Mortgage Association, Series 2005-77, Class CS, 2.430%, 7/20/2032............................... 2,825,814 FHLMC, Series 2906, Class IB, 0.000%, 4/15/2033............. 1,254,777 FHLMC, Series 2989, Class BF, 5.620%, 1/15/2034............. 2,647,657 ----------- Total................................................... $12,240,192 ===========
CS First Boston Repurchase Agreement, 4.300%, due 1/3/2006, par value $5,000,000 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ---------- CS First Boston Mortgage Securities Corp., Series 2005-C5, Class AM, 5.100%, 8/15/2038............................... $5,253,595 ---------- Total................................................... $5,253,595 ==========
CS First Boston Repurchase Agreement, 4.300%, due 1/3/2006, par value $4,000,000 111 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ---------- CS First Boston Mortgage Securities Corp., Series 2005-11, Class 5A3, 5.250%, 12/25/2020............................. $4,203,992 ---------- Total................................................... $4,203,992 ==========
CS First Boston Repurchase Agreement, 4.300%, due 1/3/2006, par value $35,000,000 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ----------- Armor MCP, Series 2005-1A, Class B1, 4.850%, 12/10/2037..... $ 7,495,000 Banc of America Mortgage Securities, Series 2004-G, Class 2A3, 4.232%, 8/25/2034.................................... 754,913 CS First Boston Mortgage Securities Corp., Series 2005-2, Class CX, 5.000%, 2/25/2020............................... 245,422 CS First Boston Mortgage Securities Corp., Series 2005-3, Class CX, 5.500%, 7/25/2020............................... 913,806 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 5A4, 5.250%, 12/25/2020............................. 2,495,706 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 6A7, 6.000%, 12/25/2035............................. 1,024,950 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 7A2, 6.000%, 12/25/2035............................. 6,933,814 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 8A7, 0.000%, 12/25/2035............................. 981,167 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 8A8, 5.500%, 12/25/2035............................. 3,165,917 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 8A10, 5.500%, 12/25/2035............................ 4,594,573 CS First Boston Mortgage Securities Corp., Series 2005-11, Class AX, 5.500%, 12/25/2035.............................. 873,388 CS First Boston Mortgage Securities Corp., Series 2005-11, Class DX, 6.000%, 12/25/2035.............................. 2,221,236 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 5X, 5.250%, 12/25/2020.............................. 538,158 CS First Boston Mortgage Securities Corp., Series 2005-11, Class AP, 0.000%, 12/25/2035.............................. 2,385,532 CS First Boston Mortgage Securities Corp., Series 2004-8, Class 4X, 5.500%, 12/25/2034.............................. 1,080,349 Wells Fargo Mortgage Backed Securities Trust, Series 2005-AR15, Class 1A9, 5.132%, 9/25/2035................... 1,049,131 ----------- Total................................................... $36,753,062 ===========
CS First Boston Repurchase Agreement, 4.300%, due 1/3/2006, par value $15,000,000 112 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ----------- CMO 144A CS First Boston Mortgage Securities Corp., Pool Number 225GH6, 0.000%, 8/25/2033.......................... $ 4,907,666 CS First Boston Mortgage Securities Corp., Series 2005-11, Class 5A3, 5.250%, 12/25/2020............................. 6,636,337 Structured Adjustable Rate Mortgage Loan Trust, Series 2004-8, Class 5A1, 4.702%, 7/25/2034...................... 1,376,631 Wells Fargo Mortgage Backed Securities Trust, Series 2005-16, Class A5, 8.395%, 1/25/2036...................... 2,831,398 ----------- Total................................................... $15,752,032 ===========
CS First Boston Repurchase Agreement, 4.300%, due 1/3/2006, par value $20,000,000 Collateralized by:
DESCRIPTION FAIR VALUE ----------- ----------- CS First Boston Mortgage Securities Corp., Series 2005-11, Class 6A5, 6.000%, 12/25/2035............................. $21,003,720 ----------- Total................................................... $21,003,720 ===========
WRITTEN OPTION ACCOUNTING The Master Portfolios may write (sell) call or put options for trading or hedging purposes. When a Master Portfolio writes an option, an amount equal to the premium received by the Master Portfolio is included in the Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. By writing the option, the Master Portfolio may become obligated during the term of the option to deliver or purchase the securities underlying the option at the exercise price if the option is exercised. Option contracts are valued at the average of the current bid and asked price reported on the day of the valuation. When an option expires on its stipulated expiration date or the Master Portfolio enters into a closing purchase transaction, the Master Portfolio realizes a gain or loss if the cost of the closing transaction differs from the premium received when the option was sold, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When an option is exercised, the premium originally received decreases the cost basis of the underlying security (or increases the proceeds on the security sold short) and the Master Portfolio realizes a gain or loss from the sale of the security (or closing of the short sale). As collateral for uncovered written options, the Master Portfolio is required under the 1940 Act to maintain 113 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 assets consisting of cash, cash equivalents or liquid securities. This collateral is required to be adjusted daily to reflect the market value of the purchase obligation for put options or the market value of the instrument underlying the contract for call options. FOREIGN CURRENCY TRANSLATIONS The books and records of the Master Portfolios are maintained in U.S. dollars. For the Master Portfolios, foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities and other assets and liabilities are translated at the exchange rate of such currencies against the U.S. dollar, as provided by an approved pricing service, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Master Portfolios do not isolate and treat as ordinary income that portion of the results of operations arising as a result of changes in the exchange rate from the fluctuations arising from changes in the market prices of securities held during the period. However, for federal income tax purposes, the Master Portfolios do isolate and treat as ordinary income the effect of changes in foreign exchange rates arising from actual foreign currency transactions and the effect of changes in foreign exchange rates arising between trade date and settlement date. RESTRICTED SECURITIES The Master Portfolios may invest in restricted securities. These securities are valued by the Master Portfolios after giving due consideration to pertinent factors including recent private sales, market conditions and the issuer's financial performance. The Master Portfolios have no right to require registration of unregistered securities. At December 31, 2005, the Master Portfolios did not hold any investment securities which were determined to be illiquid pursuant to the guidelines adopted by the Board of Trustees. WHEN-ISSUED SECURITIES The Master Portfolios may purchase securities on a when-issued or delayed delivery basis. Although the purchase amounts of these securities are established at the time the purchaser enters into the agreement, these securities may be delivered and paid for at a future date. The Master Portfolios record purchases of when-issued securities and reflect the values of such securities in determining net asset value in the same manner as other portfolio securities. The Master Portfolios maintain at all times cash or other liquid assets in an amount at least equal to the amount of outstanding commitments for when-issued securities. 114 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 EXPENSE REDUCTION The Adviser has directed a certain amount of the Master Portfolios' trades to brokers believed to provide the best execution and, as a result, it has generated directed brokerage credits to reduce certain service provider fees. For the year ended December 31, 2005, the total expenses of The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio and The Small Cap Opportunities Portfolio were reduced by $6,529, $606, $146,440, $2,958 and $82,370, respectively, by using directed brokerage credits. 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. SECURITIES LENDING Each Master Portfolio may lend its portfolio securities to broker-dealers by entering directly into lending arrangements with such broker-dealers or indirectly through repurchase agreements with respect to no more than 33 1/3% of the total assets of each Portfolio (including any collateral posted) or 50% of the total assets of each Portfolio (excluding any collateral posted). Securities lending and repurchase transactions will be fully collateralized at all times with cash and/or short-term debt obligations. The Master Portfolios receive interest on the collateral received as well as a fee for the securities loaned. EXPENSE ALLOCATION Common expenses incurred by the Master Portfolios are allocated among the Master Portfolios (i) based upon relative average net assets, (ii) as incurred on a specific identification basis, or (iii) equally among the Master Portfolios, depending on the nature of the expenditure. All expenses incurred by the Master Portfolios are allocated to the feeder funds daily based on their proportionate interest in the Master Portfolio. FEDERAL INCOME TAXES Each Master Portfolio will be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be subject to taxation on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed so an investor in the Portfolio can satisfy the requirements of subchapter M of the Internal Revenue Code. 115 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. OTHER Realized gains and losses on the sale of investments are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recognized on the accrual basis. 3. INVESTMENT ADVISER The Trust has entered into Investment Advisory Agreements (the "Agreements") with Kinetics Asset Management, Inc. (the "Adviser"), with whom certain officers and trustees of the Trust are affiliated, to furnish investment advisory services to the Master Portfolios. Under the terms of the Agreements, the Master Portfolios compensate the Adviser for its management services at the annual rate of 1.25% of each Master Portfolio's average daily net assets, except for The Kinetics Government Money Market Portfolio, which compensates the Adviser at a rate of 0.50% of the Master Portfolio's average daily net assets. For the year ended December 31, 2005, The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, and The Kinetics Government Money Market Portfolio incurred expenses of $2,089,645, $50,562, $3,645,672, $207,698, $960,589 and $5,746, respectively, pursuant to the Investment Advisory Agreements. KBD Securities, LLC, an affiliate of the Adviser, received $339,149 in brokerage fee commissions with respect to the Portfolios' portfolio transactions, which constituted 34% of the Portfolios' brokerage commissions during the period.
PORTFOLIO COMMISSIONS --------- ----------- The Internet Portfolio...................................... $ 19,320 The Internet Emerging Growth Portfolio...................... $ 855 The Paradigm Portfolio...................................... $210,699 The Medical Portfolio....................................... $ 2,492 The Small Cap Opportunities Portfolio....................... $105,783
For the year ended December 31, 2005, the Trust was allocated $24,000 for the services of the Chief Compliance Officer employed by the Adviser. 116 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 4. SECURITIES TRANSACTIONS Purchases and sales of investment securities, other than short-term investments, for the year ended December 31, 2005 were as follows:
PURCHASES SALES ------------------------- ------------------------ U.S. U.S. GOVERNMENT OTHER GOVERNMENT OTHER ---------- ------------ ---------- ----------- The Internet Portfolio...... $-- $ 18,225,130 $-- $36,402,773 The Internet Emerging Growth Portfolio................. -- 403,836 -- 68,206 The Paradigm Portfolio...... -- 328,039,996 -- 13,215,961 The Medical Portfolio....... -- 306,441 -- 6,088,944 The Small Cap Opportunities Portfolio................. -- 70,152,889 -- 2,617,339
As of December 31, 2005, unrealized appreciation (depreciation) on investment securities for federal income tax purposes was as follows:
NET APPRECIATION APPRECIATED DEPRECIATED (DEPRECIATION) SECURITIES SECURITIES -------------- ----------- ------------ The Internet Portfolio................. $ 7,719,056 $42,142,745 $(34,423,689) The Internet Emerging Growth Portfolio............................ 620,515 1,329,184 (708,669) The Paradigm Portfolio................. 60,709,037 76,735,985 (16,025,948) The Medical Portfolio.................. (1,720,204) 2,919,292 (4,639,496) The Small Cap Opportunities Portfolio............................ 18,705,211 22,887,629 4,182,418
At December 31, 2005, the cost of investments for federal income tax purposes was $156,632,393, $3,661,257, $518,913,438, $17,234,367 and $131,604,920 for The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, and The Small Cap Opportunities Portfolio, respectively. For the year ended December 31, 2005, the Master Portfolios wrote the following options:
NUMBER PREMIUM OF CONTRACTS AMOUNT ------------ --------- THE INTERNET PORTFOLIO - ----------------------------------------------------- Outstanding at the Beginning of Year................. 1,145 $ 316,753 Options Expired...................................... (1,140) (309,768) ------ --------- Outstanding at the End of Year....................... 5 $ 6,985 ====== =========
117 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005
NUMBER PREMIUM OF CONTRACTS AMOUNT ------------ --------- THE INTERNET EMERGING GROWTH PORTFOLIO - ----------------------------------------------------- Outstanding at the Beginning of Year................. 20 $ 11,540 Options Written...................................... 20 10,939 ------ --------- Outstanding at the End of Year....................... 40 $ 22,479 ====== ========= THE MEDICAL PORTFOLIO - ----------------------------------------------------- Outstanding at the Beginning of Year................. 150 $ 83,697 Options Expired...................................... (150) (83,697) ------ --------- Outstanding at the End of Year....................... -- $ -- ====== =========
5. PORTFOLIO SECURITIES LOANED As of December 31, 2005, the Master Portfolios had loaned securities that were collateralized by cash. The cash collateral is invested by the custodian in a money market pooled account approved by the Adviser. Although risk is mitigated by the collateral, the Master Portfolio could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. The Master Portfolio receives interest on the collateral received as well as a fee for the securities loaned. The Master Portfolios will continue to receive dividends and interest on all securities loaned. Gain or loss in the fair value of the securities loaned that may occur during the term of the loan will be accounted for by the Master Portfolios. The value of the securities on loan and the value of the related collateral at December 31, 2005, were as follows:
SECURITIES COLLATERAL ----------- ----------- The Internet Portfolio.................... $14,312,196 $14,811,999 The Internet Emerging Growth Portfolio.... 330,145 341,270 The Paradigm Portfolio.................... 43,618,328 45,491,401 The Medical Portfolio..................... 800,488 856,159 The Small Cap Opportunities Portfolio..... 17,953,002 19,075,401
118 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 6. SELECTED FINANCIAL HIGHLIGHTS Financial highlights for the Master Portfolios were as follows:
THE INTERNET PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets: Before expense reduction................. 1.45% 1.50% 1.51% 1.51% 1.44% After expense reduction.................. 1.44% 1.44% 1.51% 1.51% 1.44% Ratio of net investment income (loss) to average net assets: Before expense reduction................. 1.35% 1.30% 0.99% 0.50% 0.32% After expense reduction.................. 1.36% 1.36% 0.99% 0.50% 0.32% Portfolio turnover rate................... 12% 42% 69% 41% 44%
THE INTERNET EMERGING GROWTH PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets: Before expense reduction................. 1.73% 1.78% 1.84% 1.83% 2.30% After expense reduction.................. 1.72% 1.73% 1.84% 1.83% 2.30% Ratio of net investment income (loss) to average net assets: Before expense reduction................. 4.30% 2.77% 1.94% (1.07%) (0.22%) After expense reduction.................. 4.31% 2.82% 1.94% (1.07%) (0.22%) Portfolio turnover rate................... 2% 18% 20% 27% 24%
THE PARADIGM PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets: Before expense reduction................. 1.45% 1.52% 1.56% 1.64% 2.27% After expense reduction.................. 1.40% 1.42% 1.46% 1.64% 2.27% Ratio of net investment income (loss) to average net assets: Before expense reduction................. 0.07% (0.18%) 1.28% (0.27%) (0.69%) After expense reduction.................. 0.12% (0.08%) 1.38% (0.27%) (0.69%) Portfolio turnover rate................... 5% 52% 20% 40% 41%
119 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005
THE MEDICAL PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets: Before expense reduction................. 1.50% 1.58% 1.53% 1.53% 1.51% After expense reduction.................. 1.49% 1.57% 1.53% 1.53% 1.51% Ratio of net investment loss to average net assets: Before expense reduction................. (0.17%) (0.33%) (0.56%) (0.47%) (0.39%) After expense reduction.................. (0.16%) (0.32%) (0.56%) (0.47%) (0.39%) Portfolio turnover rate................... 2% 13% 16% 9% 6%
THE SMALL CAP OPPORTUNITIES PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets: Before expense reduction.............. 1.48% 1.55% 1.67% 1.66% 2.35% After expense reduction............... 1.37% 1.21% 1.49% 1.66% 2.35% Ratio of net investment income (loss) to average net assets: Before expense reduction.............. 0.46% 1.51% 2.88% (0.29%) (0.99%) After expense reduction............... 0.57% 1.85% 3.06% (0.29%) (0.99%) Portfolio turnover rate................ 4% 96% 180% 200% 181%
THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO ------------------------------------------------------------------------ FOR THE FOR THE FOR THE FOR THE FOR THE YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2005 2004 2003 2002 2001 ------------ ------------ ------------ ------------ ------------ Ratio of expenses to average net assets:............................... 1.37% 0.83% 0.79% 0.75% 0.79% Ratio of net investment income to average net assets:................... 1.58% 0.18% 0.15% 0.67% 2.70% Portfolio turnover rate................ N/A N/A N/A N/A N/A
7. INFORMATION ABOUT PROXY VOTING (UNAUDITED) Information regarding how the Kinetics Portfolios Trust vote proxies relating to portfolio securities is available without charge, upon request, by calling toll-free at (800) 930-3828 or by accessing the Funds' website at www.kineticsfunds.com and the SEC's website at www.sec.gov. Information regarding how the Portfolios voted proxies relating to portfolio securities during the twelve months ending June 30, 2005 is available without charge, upon request, by calling toll-free at (800) 930-3828 or by accessing the SEC's website at www.sec.gov. 120 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) December 31, 2005 8. INFORMATION ABOUT THE PORTFOLIO HOLDINGS (UNAUDITED) The Kinetics Portfolios Trust file their complete schedule of portfolio holdings for their first and third fiscal quarters with the SEC on Form N-Q. The Portfolios' Form N-Q is available without charge, upon request, by calling toll-free at (800) 930-3828. Furthermore, you can obtain the Form N-Q on the SEC's website at www.sec.gov. The Form N-Q may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-(800)-SEC-0330. 121 KINETICS PORTFOLIOS TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of and Board of Trustees Kinetics Portfolios Trust Sleepy Hollow, New York We have audited the accompanying statements of assets and liabilities, including the schedule of investments, of The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, the Medical Portfolio, the Small Cap Opportunities Portfolio and The Kinetics Government Money Market Portfolio, each a series of shares of Kinetics Portfolios Trust (the "Trust"), as of December 31, 2005, and the related statements of operations for the year then ended, statements of changes in net assets and financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The financial highlights for each of the three years in the period ended December 31, 2003 were audited by other auditors whose report dated February 20, 2004 expressed an unqualified opinion on the financial highlights. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Trust's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 December 31, 2005, by correspondence with the custodian and brokers. 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 provides 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 the above mentioned Portfolios as of December 31, 2005, the results of their operations for the year then ended, the changes in their net assets and the financial highlights for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. TAIT, WELLER & BAKER LLP Philadelphia, Pennsylvania February 03, 2006 122 KINETICS MUTUAL FUNDS, INC. MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS The management and affairs of the Funds and the Portfolios are supervised by the Board of Directors of the Company and the Board of Trustees of the Trust, respectively. Each Board consists of the same eight individuals, five of whom are not "interested persons" of the Company or the Trust as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act"). The Directors are fiduciaries for the Funds' shareholders and are governed by the laws of the State of Maryland in this regard. The Trustees are fiduciaries for the Portfolios' shareholders and are governed by the laws of the State of Delaware in this regard. Each Board establishes policies for the operation of the Funds and the Portfolios and appoints the officers who conduct the daily business of the Funds and the Portfolios. Directors/Trustees of the Company and the Trust are listed below with their addresses, present positions with the Company and Trust, length of time served, principal occupations over at least the last five years, number of Fund and Portfolios overseen and any other Directorships held. The SAI includes additional information about the Funds' officers and directors and is available, without charge, upon request by calling (800) 930-3828. 123 KINETICS MUTUAL FUNDS, INC. MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS -- (CONTINUED) BOARD OF DIRECTORS/BOARD OF TRUSTEES INDEPENDENT DIRECTORS/TRUSTEES
NUMBER OF PORTFOLIOS/FUNDS IN TERM OF OFFICE/ FUND COMPLEX** POSITION(S) WITH THE LENGTH OF OVERSEEN BY NAME AND ADDRESS AGE COMPANY AND TRUST TIME SERVED TRUSTEE/DIRECTOR - ------------------------------------------------------------------------------------------------ John J. Sullivan ............ 75 Independent Indefinite/ 12 c/o Kinetics Asset Director/Trustee 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591 Steven T. Russell ........... 42 Independent Indefinite/ 12 c/o Kinetics Asset Director/Trustee 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591 Douglas Cohen, C.P.A. ....... 45 Independent Indefinite/ 12 c/o Kinetics Asset Director/Trustee 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591 William J. Graham ........... 44 Independent Indefinite/ 12 c/o Kinetics Asset Director/Trustee 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591 Joseph E. Breslin ........... 52 Independent Indefinite/ 12 c/o Kinetics Asset Director/Trustee 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591
124
PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE/DIRECTOR - -------------------------------------------------------------------------------------------------- Retired; Senior Advisor, Long Term Credit Bank Director, The Kinetics Funds ((2003 to of Japan, Ltd.; Executive Vice President, Long Present) Term Credit Bank Trust Company (1987-1999). Attorney and Counselor at Law, Partner Law Firm N/A of Russell and Fig (since September 2002); Steven Russell Law Firm (1994 to 2002); Professor of Business Law, Suffolk County Community College (1997 to Present). Sunrise Credit Services, Inc. (2005 to Director, The Kinetics Funds (2003 to Present); Wagner & Zwerman, LLP Certified Present) Public Accountant (1997 to 2005); Leon D. Alpern & Co. (1985 to 1997). Attorney, William J. Graham, PC (2001 to N/A Present); Bracken & Margolin, LLP (1997 to 2001); Gabor & Gabor (1995 to 1997). Chief Compliance Officer, Aladdin Capital Director of Andrx Corporation; Director, AIP Management; Independent Consultant Whitehall Alternative Strategies Fund Asset Management (May 2003 to 2004); Senior Managing Director, Marketing & Sales, Whitehall Asset Management, a financial services company (1999 to May 2003); President, J.E. Breslin & Co., an investment management consulting firm (1994 to 1999).
125 KINETICS MUTUAL FUNDS, INC. MANAGEMENT OF THE FUNDS AND THE PORTFOLIOS -- (CONTINUED) BOARD OF DIRECTORS/BOARD OF TRUSTEES (CONTINUED) INTERESTED DIRECTORS/TRUSTEES AND OFFICERS
NUMBER OF PORTFOLIOS/FUNDS IN TERM OF OFFICE/ FUND COMPLEX** POSITION(S) WITH THE LENGTH OF OVERSEEN BY NAME AND ADDRESS AGE COMPANY AND TRUST TIME SERVED TRUSTEE/DIRECTOR - ---------------------------------------------------------------------------------------------- Murray Stahl* ............. 53 Director/Trustee, Indefinite/ 12 c/o Kinetics Asset Secretary 6 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591 Peter B. Doyle* ........... 44 Director/Trustee, Indefinite/ 12 c/o Kinetics Asset President and 4 years Management, Inc. Chairman of the 16 New Broadway Board Sleepy Hollow, New York, 10591 Leonid Polyakov* .......... 47 Director/Trustee Indefinite/ 12 c/o Kinetics Asset and Treasurer 4 years Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591
* Directors/Trustees who are considered "interested persons" as defined in Section 2(a)(19) of the 1940 Act because of their association with the Adviser. 126
PRINCIPAL OCCUPATION DURING THE PAST FIVE YEARS OTHER DIRECTORSHIPS HELD BY TRUSTEE/DIRECTOR - -------------------------------------------------------------------------------------------------- Chairman, The FRMO Corp. (2001 to Present) Chairman of Horizon Asset Management; (provides consulting services to private Chairman of FRMO Corporation investment funds and research services with respect to marketable securities); Chairman, Horizon Asset Management, an investment adviser (1994 to Present); Director of Research, Kinetics Asset Management and Kinetics Mutual Funds, Inc. President, Kinetics Asset Management and Director, The Kinetics Funds (2001 to Kinetics Fund Distributors, Inc. (2002 to Present) Present); Director, Kinetics Advisers, LLC (2000 to Present); Director and Officer, Horizon Asset Management, Inc. (1994 to Present); Chief Investment Strategist, Kinetics Asset Management and Kinetics Mutual Funds, Inc. (1998 to Present). CFO, Kinetics Asset Management, Inc. (2000 to Director, The Kinetics Funds (2001 to Present); President, Kinetics Funds Present) Distributor, Inc. (2002 to Present); Director, Kinetics Advisers, LLC (2000 to Present); CFO, KBD Securities, LLC (2000 to Present); Vice- President, JP Morgan (1997 to 2000).
** The term "fund complex" refers to the Company and the Trust, which hold themselves out as related for investment purposes. 127 KINETICS MUTUAL FUNDS, INC. & KINETICS PORTFOLIOS TRUST PRIVACY POLICY We collect the following nonpublic personal information about you: - Information we receive from you on or in applications or other forms, correspondence, or conversations, including, but not limited to, your name, address, phone number, social security number, assets, income and date of birth; and - Information about your transactions with us, our affiliates, or others, including, but not limited to, your account number and balance, payments history, parties to transactions, cost basis information, and other financial information. We do not disclose any nonpublic personal information about our current or former shareholders to nonaffiliated third parties, except as permitted by law. For example, we are permitted by law to disclose all of the information we collect, as described above, to our transfer agent to process your transactions. Furthermore, we restrict access to your nonpublic personal information to those persons who require such information to provide products or services to you. We maintain physical, electronic, and procedural safeguards that comply with federal standards to guard your nonpublic personal information. In the event that you hold shares of the fund(s) through a financial intermediary, including, but not limited to, a broker-dealer, bank, or trust company, the privacy policy of your financial intermediary would govern how your nonpublic personal information would be shared with nonaffiliated third parties. Kinetics Mutual Funds, Inc. 16 New Broadway Sleepy Hollow, NY 10591 INVESTMENT ADVISER AND SHAREHOLDER SERVICING AGENT Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, NY 10591 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Tait, Weller & Baker LLP 1818 Market Street Suite 2400 Philadelphia, PA 19103 DISTRIBUTOR Kinetics Funds Distributor, Inc. 16 New Broadway Sleepy Hollow, NY 10591 ADMINISTRATOR FUND ACCOUNTANT AND TRANSFER AGENT U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202 CUSTODIAN U.S. Bank, N.A. 615 East Michigan Street Milwaukee, WI 53202 THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS 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. The registrant has not made any material amendments to its code of ethics during the period covered by this report. The registrant has not granted any waivers from any provisions of the code of ethics during the period covered by this report. A copy of the registrant's Code of Ethics is filed herewith. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The registrant's board of trustees/directors has determined that there is at least one audit committee financial expert serving on its audit committee. Mr. Douglas Cohen and Mr. Joseph Breslin are the "audit committee financial experts" and are considered to be "independent" as each term is defined in Item 3 of Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. (a) Audit Fees. The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years are $42,000 and $42,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2004 and $45,000 and $45,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005. (b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported under paragraph (a) of this item are $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2004 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005. (c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance are $7,500 and $7,500 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2004 and $12,000 and $12,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005. Professional services for tax compliance include review of the Funds' federal and state income tax returns. (d) All Other Fees. The aggregate fees billed in each of the last two fiscal years for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) of this Item are $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2004 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005. (e)(1)The audit committee does not have pre-approved policies and procedures. Instead, the audit committee or sub-audit committee approves on a case-by-case basis each audit or non-audit service before the accountant is engaged by the registrant. (e)(2)There were no services described in each of paragraphs (b) through (d) of this item that were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) Rule 2-01 of Regulation S-X. (f) The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was zero percent (0%). (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for each of the last two fiscal years of the registrant was $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2004 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005. (h) Not applicable as the response to (g) of this item is none. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to open-end investment companies. ITEM 6. SCHEDULE OF INVESTMENTS. The Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. 2 ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable to open-end investment companies. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not Applicable. ITEM 11. CONTROLS AND PROCEDURES. (a) The Registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective as of a date within 90 days of the filing date of this report, that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended. (b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a) (1) The registrant's Code of Ethics for Chief Executive and Chief Senior Financial Officers is filed herewith. (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (3) Not applicable to open-end investment companies. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. 3 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) Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust By (Signature and Title)* /s/ Peter B. Doyle ---------------------------------------- Peter B. Doyle, President Date 04/16/07 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/ Peter B. Doyle ----------------------------------------- Peter B. Doyle, President Date 04/16/07 By (Signature and Title)* /s/ Leonid Polyakov ----------------------------------------- Leonid Polyakov, Treasurer Date 03/30/07 * Print the name and title of each signing officer under his or her signature. 4 EX-99.CODE 2 c14637exv99wcode.txt CODE OF ETHICS EX.99.CERT CODE OF ETHICS FOR CHIEF EXECUTIVE AND SENIOR FINANCIAL OFFICERS OF KINETICS MUTUAL FUNDS, INC. AND KINETICS PORTFOLIOS TRUST Kinetics Mutual Funds, Inc. (the "Company") and Kinetics Portfolios Trust (the "Trust," and together with the Company, the "Funds") are committed to conducting business in accordance with applicable laws, rules and regulations and the highest standards of business ethics, and to full and accurate disclosure -- financial and otherwise -- in compliance with applicable law. This Code of Ethics, applicable to the Funds' Chief Executive Officer (the President and Chairman of the Board) and Chief Financial Officer (the Treasurer) (or persons performing similar functions) (together, "Senior Officers"), sets forth policies to guide you in the performance of your duties and is for the purpose of promoting: - honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; - full, fair, accurate, timely and understandable disclosure in reports and documents that the Funds file with, or submit to, the Securities and Exchange Commission and in other public communications made by the Funds; - compliance with applicable laws and governmental rules and regulations; - the prompt internal reporting of violations of the Code of Ethics to an appropriate person or persons identified in this Code; and - accountability for adherence to this Code. As a Senior Officer, you must comply with applicable law. You also have a responsibility to conduct yourself in an honest and ethical manner. You have leadership responsibilities that include creating a culture of high ethical standards and a commitment to compliance, maintaining a work environment that encourages the internal reporting of compliance concerns and promptly addressing compliance concerns. This Code of Ethics recognizes that the Senior Officers are subject to certain conflicts of interest inherent in the operation of investment companies, because, among other reasons, the Senior Officers currently or may in the future serve as officers or employees of the Funds' investment advisor (the "Advisor") and/or affiliates of the Funds' investment advisor (collectively, "Kinetics"). This Code of Ethics also recognizes that certain laws and regulations applicable to, and certain policies and procedures adopted by, the Funds or Kinetics govern your conduct in connection with many of the conflict of interest situations that arise in connection with the operations of the Funds, including: - the Investment Company Act of 1940, as amended, and the rules and regulation promulgated thereunder by the Securities and Exchange Commission (the "1940 Act"); - the Investment Advisers Act of 1940, as amended, and the rules and regulations promulgated thereunder by the Securities and Exchange Commission (the "Advisers Act"); - the Code of Ethics adopted by the Funds pursuant to Rule 17j-1(c) under the 1940 Act (the "Funds' 1940 Act Code of Ethics"); - one or more codes of ethics adopted by Kinetics that have been reviewed and approved by those directors of the Company and trustees of the Trust that are not "interested persons" of the Company and the Trust, respectively, (the "Independent Directors/Trustees"), within the meaning of the 1940 Act ("Kinetics' 1940 Act Code of Ethics" and, together with the Funds' 1940 Act Code of Ethics, the "1940 Act Codes of Ethics"); and - Kinetics 's general policies and procedures to address, among other things, conflict of interest situations and related matters (collectively, the "Kinetics Policies"). The provisions of the 1940 Act, the Advisers Act, the 1940 Act Codes of Ethics, and the Kinetics Policies are referred to herein collectively as the "Additional Conflict Rules". This Code of Ethics is different from, and is intended to supplement, the Additional Conflict Rules. Accordingly, a violation of the Additional Conflict Rules by a Senior Officer is hereby deemed not to be a violation of this Code of Ethics, unless and until the Independent Directors/Trustees shall determine that any such violation of the Additional Conflict Rules is also a violation of this Code of Ethics. SENIOR OFFICERS SHOULD ACT HONESTLY AND CANDIDLY Each Senior Officer has a responsibility to the Funds to act with integrity. Integrity requires, among other things, being honest and candid. Deceit and subordination of principle are inconsistent with integrity. Each Senior Officer must: - act with integrity, including being honest and candid while still maintaining the confidentiality of information where required by law or the Additional Conflict Rules; - comply with the laws, rules and regulations that govern the conduct of the Funds' operations and report any suspected violations thereof in accordance with the section below entitled "Compliance"; and - adhere to a high standard of business ethics. CONFLICTS OF INTEREST A conflict of interest for the purpose of this Code of Ethics occurs when your private interests, or those of your family members, interfere in any way, or even appear to interfere, with the interests of the Funds. Senior Officers are expected to use objective and unbiased standards when making decisions that affect the Funds, keeping in mind that Senior Officers are subject to certain inherent conflicts of interest because Senior Officers of the Funds, or a member of a Senior Officer's family, also are or may be officers of Kinetics (as a result of which it is incumbent upon you to be familiar with and to seek to comply with the Additional Conflict Rules). 6 You are required to conduct the business of the Funds in an honest and ethical manner, including the ethical handling of actual or apparent conflicts of interest between personal and business relationships. When making any investment, accepting any position or benefits, participating in any transaction or business arrangement or otherwise acting in a manner that creates or appears to create a conflict of interest with respect to the Funds where you are receiving a personal benefit, you should act in accordance with the letter and spirit of this Code of Ethics. If you are in doubt as to the application or interpretation of this Code of Ethics to you as a Senior Officer of the Funds, you should make full disclosure of all relevant facts and circumstances to the Audit Committees of the Funds and obtain approval prior to taking action. Each Senior Officer must: - avoid conflicts of interest wherever possible; - handle any actual or apparent conflict of interest ethically; - not use his or her personal influence or personal relationships to influence investment decisions or financial reporting by the Funds whereby the Senior Officer would benefit personally to the detriment of the Funds; - not cause the Funds to take action, or fail to take action, for the personal benefit of the Senior Officer rather than the benefit of the Funds; - not use material non-public knowledge of portfolio transactions made or contemplated for the Funds to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; and - report at least annually affiliations or other relationships with the Funds, the Advisor or the distributor, including any related conflict of interest. Some conflict of interest situations that should always be approved by the Audit Committees, if material, include the following: - the receipt of any entertainment or non-nominal gift by the Senior Officer, or a member of his or her family, from any company with which the Funds have current or prospective business dealings (other than Kinetics), unless such entertainment or gift is business related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; - any ownership interest in, or any consulting or employment relationship with, any of the Funds' service providers, other than Kinetics; or - a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Funds for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Senior Officer's employment by Kinetics, such as compensation or equity ownership. 7 DISCLOSURES It is the policy of the Funds to make full, fair, accurate, timely and understandable disclosure in compliance with all applicable laws and regulations in all reports and documents that the Funds file with, or submits to, the Securities and Exchange Commission and in all other public communications made by the Funds. As a Senior Officer, you are required to promote compliance with this policy and to abide by the Funds' standards, policies and procedures designed to promote compliance with this policy. Each Senior Officer must: - familiarize himself or herself with the disclosure requirements applicable to the Funds as well as the business and financial operations of the Funds; and - not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, including to the Trustees/Directors, the Funds' independent auditors, the Funds' counsel, counsel to the Independent Trustees/Directors, governmental regulators or self-regulatory organizations. Unless otherwise required by law, this Code shall be disclosed as required by the Securities and Exchange Commission. COMPLIANCE It is the Funds' policy to comply with all applicable governmental laws, rules and regulations. It is the personal responsibility of each Senior Officer to adhere to the standards and restrictions imposed by those laws, rules and regulations, including those relating to affiliated transactions, accounting and auditing matters. ACCOUNTABILITY Each Senior Officer must: - upon receipt of the Code of Ethics, sign and submit to the Funds' Boards an acknowledgement stating that he has received, read and understands the Code on the certification attached hereto as Appendix A. - annually thereafter affirm to the Funds' Boards that he has complied with the requirements of the Code and reported any violations of the Code on the certification attached hereto as Appendix A. - notify the Audit Committee promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. - not retaliate against any other Senior Officer or any employee of the Funds or affiliated persons of the Funds or the Funds' service providers for reports of potential violations that are made in good faith. 8 REPORTING VIOLATIONS The Funds' Audit Committees are responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation. The Funds' Audit Committees may consult Fund counsel in order to effectively discharge its responsibilities. INVESTIGATION PROCEDURES The Funds will follow these procedures in investigating and enforcing this Code of Ethics: - The Audit Committee will take all appropriate action to investigate any potential violations of the Code; - If, after such investigation, the Audit Committee believes that no violation has occurred, the Audit Committee is not required to take any further action; - Any matter that the Audit Committee believes is a violation of this Code will be reported to the Funds' Board; and - If the Board concurs that a violation has occurred, it will take action which it considers appropriate. Such action may include a review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of each service provider or its governing body; or a recommendation to dismiss the Senior Officer. WAIVERS OF CODE OF ETHICS The Audit Committees are responsible for granting waivers, implicit or otherwise, of this Code of Ethics, as appropriate. Such Committees will be responsible for granting waivers, as appropriate; and any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. A waiver is the approval of a material departure from a provision of this Code. An implicit waiver is the Funds' failure to take action within a reasonable period of time regarding a material departure from a provision of this Code that has been made known to the Audit Committees. RECORDKEEPING The Funds will maintain and preserve for a period of not less than six (6) years from the date an action is taken, the first two (2) years in an easily accessible place, a copy of the information or materials supplied to the Audit Committees: (i) that provided the basis for any amendment or waiver to this Code of Ethics; and (ii) relating to any violation of this Code of Ethics and sanctions imposed for such violation, together with a written record of the approval or action taken by the Audit Committees. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code of Ethics shall be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code of Ethics, such matters shall not be disclosed to anyone other than the Audit 9 Committees, the Funds and their counsel, Kinetics and its counsel and any other advisors, consultants or counsel retained by the Boards of the Company or the Trust or the Audit Committees. AMENDMENTS This Code of Ethics, other than Exhibit A, may not be amended except in written form, which is specifically approved by a majority vote of the Boards of the Company and the Trust, including a majority of the Independent Directors/Trustees. NO RIGHTS CREATED This Code of Ethics is a statement of certain fundamental principles, policies and procedures that govern each of the Senior Officers in the conduct of the Funds' business. It is not intended to and does not create any rights in any employee, investor, supplier, competitor, shareholder or any other person or entity. 10 APPENDIX A KINETICS MUTUAL FUNDS, INC. AND KINETICS PORTFOLIOS TRUST CERTIFICATION AND ACKNOWLEDGEMENT OF RECEIPT OF CODE OF ETHICS I acknowledge and certify that I have received a copy of the Code of Ethics for the Chief Executive Officer (President/Chairman of the Board) and Chief Financial Officer (the Treasurer) of Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust (the "Code"). I understand and agree that it is my responsibility to read and familiarize myself with the policies and procedures contained in the Code and to abide by those policies and procedures. I acknowledge my commitment to comply with the Code. APPLICABLE NEXT YEAR: I acknowledge that I complied with the Code for the one-year period ended _____. I acknowledge that I reported all violations of this Code of Ethics for the one-year period ended ___________ of which I am aware. (Please submit on a separate piece of paper, exceptions to these acknowledgements.) ___________________________ _______________________________ Officer Name (Please Print) Officer Signature ______________________________ Date 11 EX-99.CERT 3 c14637exv99wcert.txt CERTIFICATION EX. 99.CERT I, Peter B. Doyle, certify that: 1. I have reviewed this report on Form N-CSR of Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust (each, the "registrant"); 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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: 4/16/07 /s/ Peter B. Doyle ------------------------ Peter B. Doyle President 12 EX.99.CERT I, Leonid Polyakov, certify that: 1. I have reviewed this report on Form N-CSR of Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust (each, the "registrant"); 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) 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 (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this 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: 3/30/07 /s/ Leonid Polyakov ------------------- Leonid Polyakov Treasurer EX-99.906CERT 4 c14637exv99w906cert.txt SECTION 906 CERTIFICATION EX.99.906CERT 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 Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust (each, the "Registrant"), does hereby certify, to such officer's knowledge, that the Registrant's report on Form N-CSR for the period ended December 31, 2005 fully complies with the requirements of Section 15(d) of the Securities Exchange Act of 1934, as amended, 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 Registrant. /s/ Peter B. Doyle /s/ Leonid Polyakov - ------------------------------------------------- ----------------------------- Peter B. Doyle Leonid Polyakov President, Kinetics Mutual Funds, Inc. & Kinetics Treasurer, Kinetics Mutual Portfolios Trust Funds, Inc. & Kinetics Portfolios Trust Dated: 4/16/07 This certification is being furnished to the Securities and Exchange Commission pursuant to Rule 30a-2(b) under the Investment Company Act of 1940, as amended, and 18 U.S.C. Section 1350 and is not being filed as part of the Form N-CSR with the Securities and Exchange Commission. -----END PRIVACY-ENHANCED MESSAGE-----