Kinetics Market Opportunities Fund (KMKYX) N-CSR Certified annual shareholder report (management investment company)

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 E. 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, 2006

Date of reporting period: December 31, 2006

ITEM 1. REPORT TO STOCKHOLDERS.

December 31, 2006 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

The Market Opportunities Fund

Each a series of Kinetics Mutual Funds, Inc.

[KINETICS MUTUAL FUNDS, INC. LOGO]

KINETICS MUTUAL FUNDS, INC.

Table of Contents

December 31, 2006

		Page
Shareholders’ Letter			2
Year 2006 Annual Investment Commentary			4
KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS
	Expense Example		17
	Statement of Assets & Liabilities		22
	Statement of Operations		27
	Statements of Changes in Net Assets		31
	Notes to Financial Statements		40
	Financial Highlights		54
	Report of Independent Registered Public Accounting Firm		68
KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS
	Allocation of Portfolio Assets		70
	Portfolio of Investments The Internet Portfolio		74
	Portfolio of Investments The Internet Emerging Growth Portfolio		79
	Portfolio of Investments The Paradigm Portfolio		84
	Portfolio of Investments The Medical Portfolio		96
	Portfolio of Investments The Small Cap Opportunities Portfolio		99
	Portfolio of Investments The Kinetics Government Money Market Portfolio		108
	Portfolio of Investments The Market Opportunities Portfolio		109
	Portfolio of Options Written The Internet Portfolio		114
	Portfolio of Options Written The Internet Emerging Growth Portfolio		115
	Portfolio of Options Written The Paradigm Portfolio		116
	Statement of Assets & Liabilities		117
	Statement of Operations		121
	Statements of Changes in Net Assets		125
	Notes to Financial Statements		129
	Report of Independent Registered Public Accounting Firm		141
Certification
Section 906 Certification

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KINETICS MUTUAL FUNDS, INC.

Shareholders’ Letter

Dear Fellow Shareholders:

We are pleased to present the Kinetics Mutual Funds’ Annual Report for the period ended December 31, 2006. The Kinetics Family of Mutual Funds had a solid year, with gains of 27.81% for The Paradigm Fund, 28.37% for the Small-Cap Opportunities Fund, 16.49% for The Internet Fund, 14.81% for the Medical Fund and 16.89% for the Internet Emerging Growth Fund. Our Market Opportunities Fund did not have a full year of operations during 2006. These results can be compared with the 2006 total returns, assuming dividends reinvested in the indices, of 15.79% for the S&P 500 Index and 10.38% for the NASDAQ Composite Index.

During 2006, the performance of the Kinetics Funds was driven by the underlying business operations of the investments held in the various funds. These investments included publicly-traded exchanges, investment banks, asset management firms, utilities, energy companies, pharmaceuticals, holding companies and various other operating enterprises. In general, our portfolios, irrespective of industries or sectors, consist of businesses that exhibit high returns on equity, long product life cycles and a differentiated or highly competitive position in their respective product or service markets. Our investment philosophy and strategy is to purchase such enterprises at discounts to their long-term intrinsic values and to permit their business plans to come to fruition.

We continue to inform our shareholders through our website, www.kineticsfunds.com. This website provides an 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 seven years.

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 thera-

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pies. 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 Internet/technology, 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 a segment of 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 returns.

The Internet Emerging Growth Fund focuses upon early life cycle companies that are positioned on the edge of the curve in the evolution on Internet-related technology. The statements made about the Internet Fund are equally applicable, if not more so, to this fund.

The Market Opportunities Fund seeks to invest in those companies that benefit to an unusually large degree from both the increasing size of transactions and from the increasing number of transactions. Such investments include publicly-traded exchanges, toll roads, gaming stocks and asset management firms.

The Kinetics Government Money Market Fund is a short-term investment vehicle that helps to round out our equity product offerings.

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.

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KINETICS MUTUAL FUNDS, INC.

Year 2006 Annual Investment Commentary

Dear Fellow Shareholders,

As investors, we are known to have a value orientation. This characterization is accurate in that we seek to own businesses that we deem to be trading below their intrinsic value, based on our estimates of the present values of the companies’ future cash flows in relation to their current stock prices. It is not based on some specific price-to-book value ratio or some absolute price-earnings multiple. Almost unbelievably, the dividing line between a growth index and a value index is price and various metrics based on price. For example, the highest priced (in relation to book value) 250 companies in the S&P 500 Index are included in the S&P/Barra Growth Index, and the lowest priced 250 companies are included in the S&P/Barra Value Index. The decision to classify a stock as value or growth is done without knowing the underlying nature of the businesses themselves. This practice seems dysfunctional to us; accordingly, we choose to ignore this very artificial categorization. It should be noted that a component of a portfolio manager’s compensation is frequently tied to how he/she performs in relation to a particular index. Thus, managers have a financial incentive to divide the world into the same artificial categories.

We consider ourselves to be business analysts first and foremost, and, as such, we seek investments that have long product lifecycles and easily understood business models. We are more interested in understanding a company’s cost structure (e.g., whether it has a variable-cost structure or a fixed-cost structure) than whether it is regarded as a growth or value stock. Variable-cost companies can respond swiftly to shifts in demand during business cycles by cutting costs. Fixed-cost businesses do not, on balance, have this capability. It has been our observation that variable-cost businesses tend to outperform fixed-cost businesses over extended business cycles. Asset management firms are excellent examples of variable-cost businesses. The added costs of managing additional assets are generally negligible and the resulting profitability great. It is said of these companies that the assets (and primary costs) ride up and down the elevator daily. In extremis, should a firm lose assets under management it could always rapidly reduce its workforce.

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This is not to say that some fixed-cost businesses cannot be excellent investments, and we are particularly eager to own the facilitator businesses, which benefit from the increased volume or activities of others, such as airports and, particularly, publicly-traded exchanges. However, unlike the typical fixed-cost businesses, the publicly-traded exchanges have very little annual reinvestment needs. Thus, reported earnings are usually a good indication of free cash flow. This distinction, along with their growth potential, makes them, in our opinion, value investments despite their current price-earnings multiples.

In January of 2007, McKinsey Global Institute released a report stating that “The value of global financial assets - including equities, government and corporate debt securities, and bank deposits, expanded to $140 trillion by the end of 2005, an increase of $7 trillion from a year earlier.” This staggering number is estimated to be three times the world’s GDP. “Global cross-border capital flows topped $6 trillion, a new record and more than double their level in 2002.” McKinsey further stated “our data shows that foreign investors hold one in four debt securities and one in five equities, suggesting that national financial markets are increasingly integrating into a single global market for capital.”

In another report (released in 2006 by McKinsey & Co) titled, The Asset Management Industry in 2010, it was reported that “just five years ago the average top-ten player managed about $500 billion in assets; today that figure is closer to $1 trillion.” Further, it was stated that in the year 2010, the very largest asset managers will easily top $2 trillion in assets. This information has great relevance with regard to many of the investments that we own on your behalf, principally the publicly-traded exchanges, asset managers and investment banks. The global trading platforms necessary to accommodate the world’s financial asset levels are not presently in place. They are just beginning to be created, through mergers such as that of the Chicago Mercantile Exchange and CBOT Holdings and the NYSE Holdings and Euronext, as well as by the strategic alliances being announced by exchanges on an almost daily basis. Global trading volume has risen by an incredible amount over the last 45 years. For instance, daily

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volume on the New York Stock Exchange was approximately 3 million shares in 1960, 45 million shares in 1980, 1.5 billion shares in 2005, and is currently running at approximately 2.6 billion shares. What it might be in 2010 is anyone’s guess; however, the underpinnings are set for an extraordinarily large figure. In our opinion, the future volumes that will be executed through global exchanges will be astounding when compared to today’s already robust levels.

If in 2010 the largest asset manager will have half of its assets in equities ($1 trillion estimate) and wishes to own a 4% position in Exxon-Mobil, it would need to invest $40 billion in that stock. At Exxon-Mobil’s current price that would be 533 million shares, or in excess of 9% of Exxon-Mobil’s outstanding shares today. Moreover, typical mutual fund has over 100% turnover annually.

Further, the academic community and adherents of modern portfolio theory have created the intellectual guideposts that will enable a greater amount of money to flow into hedge funds and long-only absolute return strategies. The financial managers have the monetary incentive to push these products, as they generally charge a one-percent management fee, plus 20% of the profits earned, which is much more remunerative than the fees pertaining to simple long-only mutual funds. These hedged vehicles are supposed to provide a more linear return pattern while maintaining one’s desired exposure to stocks. However, behind such an approach is an incredible amount of trading. The global asset classes selected by these managers are chosen for their uncorrelated nature. As these asset classes fluctuate in price, the managers must rebalance (trade) to bring these assets to their proper weighting.

Much of the growth in absolute return strategies has been in quantitative strategies, which use computer programs to determine which stocks to buy and sell with great rapidity. These quantitative managers believe that you can take a more scientific approach to investing, particularly hedged investing. However, investing is a subset of economics, which is a social science. Therefore, investing is more art than science, and the behavioral aspects of investing cannot be ignored. In a hard science, such as chemistry,

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the outcome will always be known (such as adding 2 parts hydrogen and 1 part oxygen to obtain water). The act of observation will not change the outcome. In a social science (or soft science) the act of observation influences the outcome. If all investors believe that something will occur, then that very belief will change the result or reward. Thus, a scientific approach will not, in the long run, be able to achieve the anticipated return if everyone believes in the inevitability of such a return. However, in the interim, more capital will enter these strategies and will support higher volume levels globally.

All of this trading potential, which we believe will come to fruition, would be the cash registers ringing for our exchange holdings. The operating leverage from a fixed-cost business can be extraordinary under certain circumstances. The reason we discuss this phenomenon so frequently is that the opportunity is still being largely ignored by the wider investment community, although heavily participated in by our various funds, most explicitly by our Market Opportunities Fund.

We are well aware of the vast array of opportunities investors have before them, and we are grateful that you have chosen us. We will continue to strive to achieve rewarding investment results for you.

You should consider a fund’s investment objective, risks, charges and expenses carefully before investing. For a prospectus, which contains useful information on all Kinetics’ funds, please visit our website at www.kineticsfunds.com.

Peter B. Doyle

Chief Investment Strategist

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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, The Market 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

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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.

January 1, 2007 — Kinetics Asset Management, Inc.

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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.

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The Internet Fund

October 21, 1996 — December 31, 2006

	Ended 12/31/06
			Advisor		Advisor
	No Load		Class A		Class A				NASDAQ
	Class		(No Load)		(Load Adjusted)(1)		S&P 500		Composite
One Year		16.50%		16.18%		9.49%		15.80%		9.52%
Five Years		6.22%		5.75%		4.50%		6.19%		4.37%
Ten Years		6.46%		N/A		N/A		8.42%		6.46%
Since Inception No Load Class (10/21/96)		19.02%		N/A		N/A		8.75%		6.79%
Since Inception Advisor Class A (4/26/01)		N/A		3.63%		2.55%		4.26%		3.06%

⁽¹⁾  Reflects front-end sales charge of 5.75%.

Returns for periods greater than one year are average annual total returns.

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The Internet Emerging Growth Fund

December 31, 1999 — December 31, 2006

	Ended 12/31/06
					NASDAQ
	Fund		S&P 500		Composite
One Year		16.90%		15.80%		9.52%
Five Years		5.39%		6.19%		4.37%
Since Inception (12/31/99)		-7.97%		1.13%		-7.18%

Returns for periods greater than one year are average annual total returns.

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The Paradigm Fund

December 31, 1999 — December 31, 2006

	Ended 12/31/06
				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		27.81	%		27.42	%		20.07	%		26.82	%		27.96%		15.80%		9.52%
Five Years		20.39	%		20.02	%		18.60	%		N/A			N/A		6.19%		4.37%
Since Inception No Load Class (12/31/99)		15.15	%		N/A			N/A			N/A			N/A		1.13%		-7.18%
Since Inception Advisor Class A (4/26/01)		N/A			17.75	%		16.53	%		N/A			N/A		4.26%		3.06%
Since Inception Advisor Class C (06/28/02)		N/A			N/A			N/A			21.71	%		N/A		10.28%		11.75%
Since Inception Institutional Class (05/27/05)		N/A			N/A			N/A			N/A			25.52%		13.20%		9.95%

⁽¹⁾  Reflects front-end sales charge of 5.75%.

Returns for periods greater than one year are average annual total returns.

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The Medical Fund

September 30, 1999 — December 31, 2006

	Ended 12/31/06
				Advisor			Advisor
	No Load			Class A			Class A					NASDAQ
	Class			(No Load)			(Load Adjusted)(1)			S&P 500		Composite
One Year		14.81	%		14.49	%		7.89	%		15.80%		9.52%
Five Years		1.25	%		0.89	%		-0.30	%		6.19%		4.37%
Since Inception No Load Class (9/30/99)		9.45	%		N/A			N/A			3.04%		-1.75%
Since Inception Advisor Class A (4/26/01)		N/A			0.58	%		-0.46	%		4.26%		3.06%

⁽¹⁾  Reflects front-end sales charge of 5.75%.

Returns for periods greater than one year are average annual total returns.

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The Small Cap Opportunities Fund

March 20, 2000 — December 31, 2006

	Ended 12/31/06
				Advisor			Advisor
	No Load			Class A			Class A			Institutional						NASDAQ
	Class			(No Load)			(Load Adjusted)(1)			Class			S&P 500			Composite
One Year		28.37	%		28.03	%		20.69	%		28.52	%		15.80	%		9.52%
Five Years		14.44	%		14.17	%		12.84	%		N/A			6.19	%		4.37%
Since Inception No Load Class (3/20/00)		16.67	%		N/A			N/A			N/A			1.25	%		-9.09%
Since Inception Advisor Class A (12/31/01)		N/A			14.17	%		12.84	%		N/A			6.19	%		4.37%
Since Inception Institutional Class (8/12/05)		N/A			N/A			N/A			22.62	%		12.92	%		8.50%

⁽¹⁾  Reflects front-end sales charge of 5.75%.

Returns for periods greater than one year are average annual total returns.

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The Market Opportunities Fund

January 31, 2006 — December 31, 2006

	Ended 12/31/06
				Advisor			Advisor
	No Load			Class A			Class A						NASDAQ
	Class			(No Load)			(Load Adjusted)(1)			S&P 500			Composite
Since Inception No Load Class (01/31/06)		20.85	% (2)		N/A			N/A			12.81	% (2)		4.75% (2)
Since Inception Advisor Class A (01/31/06)		N/A			20.68	% (2)		13.74	%(2)		12.81	% (2)		4.75% (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.

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KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Expense Example

December 31, 2006

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, 2006 and held for the entire period from July 1, 2006 to December 31, 2006.

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 30 days. These fees will be paid to the Feeder Funds to help offset transaction costs. The Feeder Funds reserve the right to waive the redemption fee, subject to their sole discretion, in instances deemed not to be disadvantageous to the Feeder Funds or shareholders.

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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.

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Expense Example

		Beginning Account		Ending Account		Expenses Paid
		Value		Value		During Period*
		(7/1/06)		(12/31/06)		(7/1/06 to 12/31/06)
The Internet Fund
	No Load Class Actual — before expense reimbursement	$	1,000.00	$	1,058.00	$	10.15
	No Load Class Actual — after expense reimbursement	$	1,000.00	$	1,058.00	$	8.81
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,015.34	$	9.94
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,016.65	$	8.63
	Advisor Class A Actual — before expense reimbursement	$	1,000.00	$	1,060.60	$	11.46
	Advisor Class A Actual — after expense reimbursement	$	1,000.00	$	1,060.60	$	10.12
	Advisor Class A Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,014.08	$	11.21
	Advisor Class A Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,015.38	$	9.90
The Internet Emerging Growth Fund
	No Load Class Actual — before expense reimbursement	$	1,000.00	$	1,074.30	$	13.82
	No Load Class Actual — after expense reimbursement	$	1,000.00	$	1,074.30	$	3.78
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,011.88	$	13.40
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,021.56	$	3.68
The Paradigm Fund
	No Load Class Actual — before expense reimbursement	$	1,000.00	$	1,079.30	$	8.80
	No Load Class Actual — after expense reimbursement	$	1,000.00	$	1.079.30	$	7.90
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,016.74	$	8.53
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,017.60	$	7.67
	Advisor Class A Actual — before expense reimbursement	$	1,000.00	$	1,078.60	$	10.11
	Advisor Class A Actual — after expense reimbursement	$	1,000.00	$	1,078.60	$	9.21
	Advisor Class A Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,015.48	$	9.80
	Advisor Class A Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,016.34	$	8.93
	Advisor Class C Actual — before expense reimbursement	$	1,000.00	$	1,075.30	$	12.71
	Advisor Class C Actual — after expense reimbursement	$	1,000.00	$	1,075.30	$	11.81
	Advisor Class C Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,012.96	$	12.32

19

			Beginning Account		Ending Account		Expenses Paid
			Value		Value		During Period*
			(7/1/06)		(12/31/06)		(7/1/06 to 12/31/06)
	Advisor Class C Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,013.82	$	11.46
	Institutional Class Actual — before expense reimbursement		$	1,000.00	$	1,079.50	$	8.54
	Institutional Class Actual — after expense reimbursement		$	1,000.00	$	1,079.50	$	6.87
	Institutional Class Hypothetical (5% return before expenses) — before expense reimbursement		$	1,000.00	$	1,016.99	$	8.28
	Institutional Class Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,018.59	$	6.67
The Medical Fund
	No Load Class Actual — before expense reimbursement		$	1,000.00	$	1,074.20	$	10.46
	No Load Class Actual — after expense reimbursement		$	1,000.00	$	1,074.20	$	5.54
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement		$	1,000.00	$	1,015.12	$	10.16
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,019.86	$	5.40
	Advisor Class A Actual — before expense reimbursement		$	1,000.00	$	1,072.90	$	11.76
	Advisor Class A Actual — after expense reimbursement		$	1,000.00	$	1,072.90	$	6.84
	Advisor Class A Hypothetical (5% return before expenses) — before expense reimbursement		$	1,000.00	$	1,013.86	$	11.42
	Advisor Class A Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,018.60	$	6.66
The Small Cap Opportunities Fund		��
	No Load Class Actual — before expense reimbursement		$	1,000.00	$	1,095.90	$	9.00
	No Load Class Actual — after expense reimbursement		$	1,000.00	$	1,095.90	$	7.67
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement		$	1,000.00	$	1,016.62	$	8.66
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,017.89	$	7.38
	Advisor Class A Actual — before expense reimbursement		$	1,000.00	$	1,093.70	$	10.31
	Advisor Class A Actual — after expense reimbursement		$	1,000.00	$	1,093.70	$	8.99
	Advisor Class A Hypothetical (5% return before expenses) — before expense reimbursement		$	1,000.00	$	1,015.36	$	9.92
	Advisor Class A Hypothetical (5% return before expenses) — after expense reimbursement		$	1,000.00	$	1,016.62	$	8.66
	Institutional Class Actual — before expense reimbursement		$	1,000.00	$	1,032.30	$	8.47
	Institutional Class Actual — after expense reimbursement		$	1,000.00	$	1,032.30	$	6.40

20

		Beginning Account		Ending Account		Expenses Paid
		Value		Value		During Period*
		(7/1/06)		(12/31/06)		(7/1/06 to 12/31/06)
	Institutional Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,016.87	$	8.40
	Institutional Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,025.21	$	6.37
The Kinetics Government Money Market Fund
	No Load Class Actual — before expense reimbursement	$	1,000.00	$	1,012.90	$	15.10
	No Load Class Actual — after expense reimbursement	$	1,000.00	$	1,012.90	$	(6.34	)
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,010.20	$	15.08
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,031.50	$	(6.40	)
The Market Opportunities Fund
	No Load Class Actual — before expense reimbursement	$	1,000.00	$	1,058.00	$	12.46
	No Load Class Actual — after expense reimbursement	$	1,000.00	$	1,058.00	$	5.78
	No Load Class Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,013.10	$	12.18
	No Load Class Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,019.58	$	5.68
	Advisor Class A Actual — before expense reimbursement	$	1,000.00	$	1,060.60	$	13.77
	Advisor Class A Actual — after expense reimbursement	$	1,000.00	$	1,060.60	$	7.09
	Advisor Class A Hypothetical (5% return before expenses) — before expense reimbursement	$	1,000.00	$	1,011.84	$	13.44
	Advisor Class A Hypothetical (5% return before expenses) — after expense reimbursement	$	1,000.00	$	1,018.32	$	6.95

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 1.96% and 1.70% for The Internet Fund No Load Class, 2.21% and 1.95% for The Internet Fund Advisor Class A, 2.64% and 0.72% for The Internet Emerging Growth Fund, 1.68% and 1.51% for The Paradigm Fund No Load Class, 1.93% and 1.76% for The Paradigm Fund Advisor Class A, 2.43% and 2.26% for The Paradigm Fund Advisor Class C, 1.63% and 1.31% for The Paradigm Fund Institutional Class, 2.00% and 1.06% for The Medical Fund No Load Class, 2.25% and 1.31% for The Medical Fund Advisor Class A, 1.70% and 1.45% for The Small Cap Opportunities Fund No Load Class, 1.95% and 1.70% for The Small Cap Opportunities Fund Advisor Class A, 1.65% and 1.25% for The Small Cap Opportunities Fund Institutional Class, 2.98% and (1.25)% The Kinetics Government Money Market Fund, 2.40% and 1.12% The Market Opportunities Fund No Load Class, and 2.65% and 1.37% The Market Opportunities Fund Advisor Class A,, multiplied by the average account value over the period, multiplied by 184/365.

21

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Assets & Liabilities

December 31, 2006

						The Internet
			The Internet			Emerging Growth
			Fund			Fund
ASSETS:
	Investments in the Master Portfolios, at value*		$	137,295,103		$	3,979,468
	Receivable from Adviser			—			3,329
	Receivable for Master Portfolio interest sold			159,334			—
	Receivable for Fund shares sold			23,792			42,274
	Prepaid expenses and other assets			12,703			9,918
		Total assets		137,490,932			4,034,989
LIABILITIES:
	Payable for Master Portfolio interest purchased			—			31,920
	Payable to Directors and Officers			2,042			35
	Payable for Fund shares repurchased			183,126			10,354
	Payable for service fees			29,678			829
	Payable for distribution fees			54			—
	Accrued expenses and other liabilities			29,252			794
		Total liabilities		244,152			43,932
		Net assets	$	137,246,780		$	3,991,057
NET ASSETS CONSIST OF:
	Paid in capital		$	291,633,353		$	14,440,878
	Accumulated net investment loss			(1,280,228	)		(97,897	)
	Accumulated net realized loss on investments, options and written option contracts			(198,719,139	)		(11,349,839	)
	Net unrealized appreciation on:
		Investments		45,605,847			992,256
		Written option contracts		6,947			5,659
		Net assets	$	137,246,780		$	3,991,057
CALCULATION OF NET ASSET VALUE PER SHARE — NO LOAD CLASS:
	Net assets		$	137,011,996		$	3,991,057
	Shares outstanding			4,787,532			797,701
	Net asset value per share (offering and redemption price)		$	28.62		$	5.00
CALCULATION OF NET ASSET VALUE PER SHARE — ADVISOR CLASS A:
	Net assets		$	234,784
	Shares outstanding			8,313
	Net asset value per share		$	28.24
	Offering price per share ($28.24 divided by .9425)		$	29.96

*  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.

22

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Assets & Liabilities — (Continued)

December 31, 2006

			The
			Paradigm			The Medical
			Fund			Fund
ASSETS:
	Investments in the Master Portfolios, at value*		$	2,145,127,327		$	16,229,985
	Receivable from Adviser			—			6,044
	Receivable for Fund shares sold			37,219,608			32,010
	Prepaid expenses and other assets			73,938			8,319
		Total assets		2,182,420,873			16,276,358
LIABILITIES:
	Payable for Master Portfolio interest purchased			35,961,166			16,100
	Payable for Advisor			162,903			—
	Payable to Directors and Officers			12,830			207
	Payable for Fund shares repurchased			1,258,442			15,910
	Payable for service fees			347,311			3,495
	Payable for distribution fees			104,115			154
	Accrued expenses and other liabilities			243,088			2,712
		Total liabilities		38,089,855			38,578
		Net assets	$	2,144,331,018		$	16,237,780
NET ASSETS CONSIST OF:
	Paid in capital		$	1,788,483,611		$	17,027,632
	Accumulated net investment income (loss)			(6,969,349	)		17,907
	Accumulated net realized loss on investments, options and written option contracts			(207,933	)		(608,024	)
	Net unrealized appreciation (depreciation) on:
		Investments		363,025,544			(199,735	)
		Written option contracts		(855	)		—
		Net assets	$	2,144,331,018		$	16,237,780
CALCULATION OF NET ASSET VALUE PER SHARE — NO LOAD CLASS:
	Net assets		$	1,337,760,588		$	15,526,635
	Shares outstanding			51,871,862			870,702
	Net asset value per share (offering and redemption price)		$	25.79		$	17.83
CALCULATION OF NET ASSET VALUE PER SHARE — ADVISOR CLASS A:
	Net assets		$	183,030,535		$	711,145
	Shares outstanding			7,197,233			40,704
	Net asset value per share		$	25.43		$	17.47
	Offering price per share ($25.43 divided by .9425 and $17.47 divided by .9425, respectively)		$	26.98		$	18.54

See Notes to the Financial Statements.

23

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Assets & Liabilities — (Continued)

December 31, 2006

		The
		Paradigm
		Fund
CALCULATION OF NET ASSET VALUE PER SHARE — ADVISOR CLASS C:
	Net assets	$	116,225,523
	Shares outstanding		4,653,637
	Net asset value per share (offering and redemption price)	$	24.98
CALCULATION OF NET ASSET VALUE PER SHARE — INSTITUTIONAL CLASS:
	Net assets	$	507,314,372
	Shares outstanding		19,692,453
	Net asset value per share (offering and redemption price)	$	25.76

*  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 Assets & Liabilities — (Continued)

December 31, 2006

			The Small			The Kinetics
			Cap			Government
			Opportunities			Money
			Fund			Market Fund
ASSETS:
	Investments in the Master Portfolios, at value*		$	491,009,054		$	1,411,366
	Cash			—			70
	Receivable from Adviser			—			2,452
	Receivable for Fund shares sold			9,324,286			—
	Prepaid expenses and other assets			24,812			12,106
		Total assets		500,358,152			1,425,994
LIABILITIES:
	Payable for Master Portfolio interest purchased			8,625,993			—
	Payable for dividend to Shareholders			—			70
	Payable to Adviser			24,604			—
	Payable to Directors and Officers			2,937			8
	Payable for Fund shares repurchased			673,689			—
	Payable for service fees			64,176			246
	Payable for distribution fees			2,476			—
	Accrued expenses and other liabilities			52,948			214
	Total liabilities			9,446,823			538
	Net assets		$	490,911,329		$	1,425,456
NET ASSETS CONSIST OF:
	Paid in capital		$	404,907,003		$	1,425,456
	Accumulated net investment loss			(463,098	)		—
	Accumulated net realized loss on investments, options and written option contracts			(1,674,369	)		—
	Net unrealized appreciation on:
		Investments		88,141,793			—
		Net assets	$	490,911,329		$	1,425,456
CALCULATION OF NET ASSET VALUE PER SHARE — NO LOAD CLASS:
	Net assets		$	268,875,210		$	1,425,456
	Shares outstanding			9,986,115			1,425,456
	Net asset value per share (offering and redemption price)		$	26.92		$	1.00
CALCULATION OF NET ASSET VALUE PER SHARE — ADVISOR CLASS A:
	Net assets		$	12,443,742
	Shares outstanding			465,832
	Net asset value per share		$	26.71
	Offering price per share ($26.71 divided by .9425)		$	28.34
CALCULATION OF NET ASSET VALUE PER SHARE — INSTITUTIONAL CLASS:
	Net Assets		$	209,592,377
	Shares outstanding			7,788,024
	Net asset value per share (offering and redemption price)		$	26.91

*  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.

25

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Assets & Liabilities — (Continued)

December 31, 2006

			The Market
			Opportunities
			Fund
ASSETS:
	Investments in the Master Portfolios, at value*		$	17,568,970
	Receivable from Adviser			6,505
	Receivable for Fund shares sold			307,203
	Prepaid expenses and other assets			18,641
		Total assets		17,901,319
LIABILITIES:
	Payable for Master Portfolio interest purchased			307,089
	Payable to Directors and Officers			857
	Payable for Fund shares repurchased			114
	Payable for service fees			3,307
	Payable for distribution fees			1,641
	Accrued expenses and other liabilities			3,471
		Total liabilities		316,479
		Net assets	$	17,584,840
NET ASSETS CONSIST OF:
	Paid in capital		$	15,883,760
	Accumulated net investment loss			(23,561	)
	Accumulated net realized loss on investments, options and written option contracts			(56	)
	Net unrealized appreciation on:
		Investments		1,724,697
		Net assets	$	17,584,840
CALCULATION OF NET ASSET VALUE PER SHARE — NO LOAD CLASS:
	Net assets		$	7,993,823
	Shares outstanding			663,238
	Net asset value per share (offering and redemption price)		$	12.05
CALCULATION OF NET ASSET VALUE PER SHARE — ADVISER CLASS A:
	Net assets		$	9,591,017
	Shares outstanding			796,907
	Net asset value per share		$	12.04
	Offering price per share ($12.04 divided by .9425)		$	12.77

*  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 Fund’s financial statements.

See Notes to the Financial Statements.

26

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Operations

For the Year Ended December 31, 2006

						The Internet
			The Internet			Emerging
			Fund			Growth Fund
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
	Dividends†		$	1,349,038		$	80,247
	Interest			182,487			66,790
	Income from securities lending			710,544			6,830
	Expenses only from Master Portfolio††			(1,916,089	)		(51,166	)
		Net investment income from Master Portfolio		325,980			102,701
EXPENSES:
	Distribution fees — Advisor Class A			608			—
	Shareholder servicing fees and expenses			630,576			26,293
	Reports to shareholders			92,271			3,687
	Administration fees			55,551			1,345
	Professional fees			20,389			467
	Directors’ and Officers’ fees and expenses			7,510			158
	Registration fees			24,150			19,512
	Fund accounting fees			7,088			116
	Other expenses			7,764			176
		Total expenses		845,907			51,754
	Less, expense reimbursement			(105,032	)		(54,224	)
		Net expenses		740,875			(2,470	)
		Net investment income (loss)		(414,895	)		105,171
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS:
	Net realized gain (loss) on:
		Investments and foreign currency		(11,569,467	)		161,804
	Net change in unrealized appreciation (depreciation) of:
		Investments and foreign currency		34,149,453			304,879
		Written option contracts		2,962			1,786
		Net gain on investments		22,582,948			468,469
		Net increase in net assets resulting from operations	$	22,168,053		$	573,640
† Net of Foreign Taxes Withheld of:			$	22,082		$	737
†† Net of expense reduction of:			$	85,368		$	5,353

See Notes to the Financial Statements.

27

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Operations — (Continued)

For the Year Ended December 31, 2006

			The Paradigm			The Medical
			Fund			Fund
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
	Dividends†		$	12,514,968		$	201,913
	Interest			12,011,077			57,927
	Income from securities lending			3,044,013			5,555
	Expenses only from Master Portfolio††			(16,198,055	)		(201,151	)
		Net investment income from Master Portfolio		11,372,003			64,244
EXPENSES:
	Distribution fees — Advisor Class A			281,729			1,608
	Distribution fees — Advisor Class C			537,917			—
	Shareholder servicing fees and expenses			3,217,237			79,732
	Shareholder servicing fees — Institutional Class			473,331			—
	Reports to shareholders			218,002			8,515
	Administration fees			447,859			5,690
	Professional fees			160,485			1,973
	Directors’ and Officers’ fees and expenses			54,761			716
	Registration fees			210,998			27,377
	Fund accounting fees			93,976			738
	Other expenses			22,183			722
		Total expenses		5,718,478			127,071
	Less, expense waiver for Institutional Class service fees			(354,998	)		—
	Less, expense reimbursement			(1,024,833	)		(110,232	)
		Net expenses		4,338,647			16,839
		Net investment income		7,033,356			47,405
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS:
	Net realized gain on:
		Investments and foreign currency		3,336,525			574,749
	Net change in unrealized appreciation (depreciation) of:
		Investments and foreign currency		299,452,507			1,519,670
		Written option contracts		(855	)		—
		Net gain on investments		302,788,177			2,094,419
		Net increase in net assets resulting from operations	$	309,821,533		$	2,141,824
† Net of Foreign Taxes Withheld of:			$	580,112		$	15,340
†† Net of expense reduction of:			$	1,022,426		$	15,309

See Notes to the Financial Statements.

28

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Operations — (Continued)

For the Year Ended December 31, 2006

						The Kinetics
			The Small Cap			Government
			Opportunities			Money Market
			Fund			Fund
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
	Dividends†		$	2,142,920		$	—
	Interest			1,623,179			46,919
	Income from securities lending			631,304			—
	Expenses only from Master Portfolio††			(3,285,536	)		(11,694	)
		Net investment income from Master Portfolio		1,111,867			35,225
EXPENSES:
	Distribution fees — Advisor Class A			21,840			—
	Shareholder servicing fees and expenses			509,981			7,616
	Shareholder servicing fees — Institutional Class			236,194			—
	Reports to shareholders			99,280			2,714
	Administration fees			94,768			390
	Professional fees			35,005			247
	Directors’ and Officers’ fees and expenses			11,666			62
	Registration fees			79,283			12,977
	Fund accounting fees			16,725			34
	Other expenses			5,307			38
		Total expenses		1,110,049			24,078
	Less, expense waiver for Institutional Class service fees			(177,145	)		—
	Less, expense reimbursement			(318,737	)		(33,561	)
		Net expenses		614,167			(9,483	)
		Net investment income		497,700			44,708
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS:
	Net realized loss on:
		Investments and foreign currency		(400,497	)		—
	Net change in unrealized appreciation of:
		Investments and foreign currency		69,114,777			—
		Net gain on investments		68,714,280			—
		Net increase in net assets resulting from operations	$	69,211,980		$	—
† Net of Foreign Taxes Withheld of:			$	23,493		$	—
†† Net of expense reduction of:			$	340,332		$	3,868

See Notes to the Financial Statements.

29

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statement of Operations — (Continued)

For the period January 31, 2006 ^ through December 31, 2006

				The Market
				Opportunities
				Fund
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
	Dividends†			$	59,694
	Interest				53,134
	Income from securities lending				898
	Expenses only from Master Portfolio‡				(92,747	)
		Net investment income from Master Portfolio			20,979
EXPENSES:
	Distribution fees — Advisor Class A				6,267
	Shareholder servicing fees and expenses				27,870
	Reports to shareholders				618
	Administration fees				2,033
	Professional fees				18,097
	Directors’ and Officers’ fees and expenses				230
	Registration fees				5,182
	Fund accounting fees				314
			Total expenses		60,611
	Less, expense reimbursement				(60,519	)
			Net expenses		92
			Net investment income		20,887
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS:
	Net realized gain on:
			Investments and foreign currency		26
	Net change in unrealized appreciation of:
			Investments and foreign currency		1,724,697
			Net gain on investments		1,724,723
			Net increase in net assets resulting from operations	$	1,745,610
† Net of Foreign Taxes Withheld of:				$	1,637
‡ Net of expense reduction of:				$	11,984

__________________

^Commencement of operations.

See Notes to the Financial Statements.

30

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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income (loss)		$	(414,895	)	$	763,308		$	105,171		$	134,885
	Net realized gain (loss) on sale of investments, foreign currency and written option contracts expired or closed			(11,569,467	)		(7,302,374	)		161,804			(20,833	)
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			34,152,415			1,383,172			306,665			(47,074	)
		Net increase (decrease) in net assets resulting from operations		22,168,053			(5,155,894	)		573,640			66,978
DISTRIBUTIONS TO SHAREHOLDERS — NO LOAD CLASS
	Net investment income			(517,032	)		(1,218,235	)		(136,199	)		(160,455	)
		Total distributions		(517,032	)		(1,218,235	)		(136,199	)		(160,455	)
DISTRIBUTIONS TO SHAREHOLDERS — ADVISOR CLASS A:
	Net investment income			(886	)		(1,745	)		N/A			N/A
		Total distributions		(886	)		(1,745	)		N/A			N/A
CAPITAL SHARE TRANSACTIONS — NO LOAD CLASS:
	Proceeds from shares sold			7,562,932			1,976,990			769,344			895,722
	Redemption fees			4,836			3,071			494			663
	Proceeds from shares issued to holders in reinvestment of dividends			489,767			1,155,106			130,660			153,337
	Cost of shares redeemed			(40,922,715	)		(50,437,185	)		(1,242,514	)		(1,644,963	)
		Net decrease in net assets resulting from No Load Class capital share transactions		(32,865,180	)		(47,302,018	)		(342,016	)		(595,241	)

See Notes to the Financial Statements.

31

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,
				2006			2005			2006			2005
CAPITAL SHARE TRANSACTIONS — ADVISOR CLASS A:
	Proceeds from shares sold			$	75,593		$	131,159		$	N/A		$	N/A
	Redemption fees				0			995			N/A			N/A
	Proceeds from shares issued to holders in reinvestment of dividends				853			1,700			N/A			N/A
	Cost of shares redeemed				(175,218	)		(177,757	)		N/A			N/A
			Net decrease in net assets resulting from Advisor Class A capital share transactions		(98,772	)		(43,903	)		N/A			N/A
TOTAL DECREASE IN NET ASSETS					(11,313,817	)		(53,721,795	)		95,425			(688,718	)
NET ASSETS:
	Beginning of year				148,560,597			202,282,392			3,895,632			4,584,350
	End of year*				137,246,780			148,560,597			3,991,057			3,895,632
*Including undistributed net investment loss of:					(1,280,228	)		(2,242,506	)		(97,897	)		(66,901	)
CHANGES IN SHARES OUTSTANDING — NO LOAD CLASS:
	Shares sold				281,558			82,811			159,298			200,890
	Shares issued in reinvestment of dividends and distributions				17,089			46,841			26,237			34,613
	Shares redeemed				(1,522,811	)		(2,104,010	)		(267,914	)		(373,836	)
			Net decrease in shares outstanding		(1,224,164	)		(1,974,358	)		(82,379	)		(138,333	)
CHANGES IN SHARES OUTSTANDING — ADVISOR CLASS A:
	Shares sold				2,829			5,549
	Shares issued in reinvestments of dividends and distributions				30			70
	Shares redeemed				(6,847	)		(7,508	)
		Net decrease in shares outstanding			(3,988	)		(1,889	)

See Notes to the Financial Statements.

32

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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income (loss)		$	7,033,356		$	(774,491	)	$	47,405		$	(183,618	)
	Net realized gain on sale of investments, foreign currency and written option contracts expired or closed			3,336,525			273,094			574,749			1,894,682
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			299,451,652			37,040,705			1,519,670			(2,051,506	)
		Net increase (decrease) in net assets resulting from operations		309,821,533			36,539,308			2,141,824			(340,442	)
DISTRIBUTIONS TO SHAREHOLDERS — NO LOAD CLASS:
	Net investment income			(7,752,890	)		(229,540	)		(29,493	)		—
	Net realized gains			(1,951,888	)		(505,860	)		(1,007,832	)		—
		Total distributions		(9,704,778	)		(735,400	)		(1,037,325	)		—
DISTRIBUTIONS TO SHAREHOLDERS — ADVISOR CLASS A:
	Net investment income			(835,845	)		—			—			—
	Net realized gains			(277,929	)		(73,876	)		(46,983	)		—
		Total distributions		(1,113,774	)		(73,876	)		(46,983	)		—
DISTRIBUTIONS TO SHAREHOLDERS — ADVISOR CLASS C:
	Net investment income			(191,431	)		—			N/A			N/A
	Net realized gains			(179,607	)		(47,582	)		N/A			N/A
		Total distributions		(371,038	)		(47,582	)		N/A			N/A
DISTRIBUTIONS TO SHAREHOLDERS — INSTITUTIONAL CLASS:
	Net investment income			(3,655,628	)		(18,827	)		N/A			N/A
	Net realized gains			(752,983	)		(13,174	)		N/A			N/A
		Total distributions		(4,408,611	)		(32,001	)		N/A			N/A
CAPITAL SHARE TRANSACTIONS — NO LOAD CLASS:
	Proceeds from shares sold			989,227,927			416,026,097			3,881,822			487,835
	Redemption fees			104,341			391,025			994			658
	Proceeds from shares issued to holders in reinvestment of dividends			9,224,894			684,456			1,022,003			—
	Cost of shares redeemed			(259,427,544	)		(114,335,059	)		(4,338,605	)		(5,800,569	)
		Net increase (decrease) in net assets resulting from No Load Class capital share transactions		739,129,618			302,766,519			566,214			(5,312,076	)

See Notes to the Financial Statements.

33

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,
			2006			2005			2006			2005
CAPITAL SHARE TRANSACTIONS — ADVISOR CLASS A:
	Proceeds from shares sold			113,300,685			38,036,699			204,936			127,135
	Redemption fees			5,690			2,465			—			—
	Proceeds from shares issued to holders in reinvestment of dividends			981,046			66,629			46,400			—
	Cost of shares redeemed			(17,958,062	)		(9,676,794	)		(138,769	)		(252,314	)
		Net increase (decrease) in net assets resulting from Advisor Class A capital share transactions		96,329,359			28,428,999			112,567			(125,179	)
CAPITAL SHARE TRANSACTIONS — ADVISOR CLASS C:
	Proceeds from shares sold			65,168,046			28,425,604			N/A			N/A
	Redemption fees			736			344			N/A			N/A
	Proceeds from shares issued to holders in reinvestment of dividends			350,484			45,141			N/A			N/A
	Cost of shares redeemed			(4,713,754	)		(1,886,081	)		N/A			N/A
		Net increase in net assets resulting from Advisor Class C capital share transactions		60,805,512			26,585,008			N/A			N/A
CAPITAL SHARE TRANSACTIONS — INSTITUTIONAL CLASS:
	Proceeds from shares sold			446,762,333			10,716,396			N/A			N/A
	Redemption fees			247			—			N/A			N/A
	Proceeds from shares issued to holders in reinvestments of dividends			4,252,037			32,002			N/A			N/A
	Cost of shares redeemed			(26,140,810	)		(474,197	)		N/A			N/A
		Net increase in net assets resulting from Institutional Class capital share transactions		424,873,807			10,274,201			N/A			N/A
TOTAL INCREASE (DECREASE) IN NET ASSETS			$	1,615,361,628		$	403,705,176		$	1,736,297		$	(5,777,697	)
NET ASSETS:
	Beginning of year			528,969,390			125,264,214			14,501,483			20,279,180
	End of year*			2,144,331,018			528,969,390			16,237,780			14,501,483
*Including undistributed net investment (loss) of:				(6,969,349	)		(1,563,028	)		17,907			—
CHANGES IN SHARES OUTSTANDING — NO LOAD CLASS:
	Shares sold			42,294,455			21,458,479			218,519			30,290
	Shares issued in reinvestment of dividends and distributions			358,361			33,667			57,000			—
	Shares redeemed			(11,381,595	)		(5,982,715	)		(242,534	)		(361,333	)
		Net increase (decrease) in shares outstanding		31,271,221			15,509,431			32,985			(331,043	)

See Notes to the Financial Statements.

34

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,
			2006			2005			2006			2005
CHANGES IN SHARES OUTSTANDING — ADVISOR CLASS A:
	Shares sold			4,933,611			1,998,353			11,659			7,926
	Shares issued in reinvestment of dividends and distributions			38,654			3,318			2,641			—
	Shares redeemed			(784,736	)		(516,504	)		(7,801	)		(15,948	)
		Net increase (decrease) in shares outstanding		4,187,529			1,485,167			6,499			(8,022	)
CHANGES IN SHARES OUTSTANDING — ADVISOR CLASS C:
	Shares sold			2,889,662			1,510,217			N/A			N/A
	Shares issued in reinvestment of dividends and distributions			14,058			2,285			N/A			N/A
	Shares redeemed			(210,239	)		(100,110	)		N/A			N/A
		Net increase in shares outstanding		2,693,481			1,412,392			N/A			N/A
CHANGES IN SHARES OUTSTANDING — INSTITUTIONAL CLASS:
	Shares sold			20,096,058			558,748			N/A			N/A
	Shares issued in reinvestments of dividends and distributions			165,385			1,576			N/A			N/A
	Shares redeemed			(1,105,467	)		(23,847	)		N/A			N/A
		Net increase in shares outstanding		19,155,976			536,477			N/A			N/A

See Notes to the Financial Statements.

35

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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income		$	497,700		$	212,370		$	44,708		$	21,059
	Net realized loss on sale of investments, foreign currency and written option contracts expired or closed			(400,497	)		(1,152,409	)		—			—
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			69,114,777			10,830,822			—			—
		Net increase in net assets resulting from operations		69,211,980			9,890,783			44,708			21,059
DISTRIBUTIONS TO SHAREHOLDERS — NO LOAD CLASS:
	Net investment income			(499,880	)		(14,682	)		(44,708	)		(21,059	)
	Net realized gains			—			(329,578	)		—			—
		Total distributions		(499,880	)		(344,260	)		(44,708	)		(21,059	)
DISTRIBUTIONS TO SHAREHOLDERS — ADVISOR CLASS A:
	Net investment income			(11,747	)		(1,343	)		N/A			N/A
	Net realized gains			—			(31,044	)		N/A			N/A
		Total distributions		(11,747	)		(32,387	)		N/A			N/A
DISTRIBUTIONS TO SHAREHOLDERS — INSTITUTIONAL CLASS:
	Net investment income			(619,610	)		(50,832	)		N/A			N/A
	Net realized gains			—			(400,218	)		N/A			N/A
		Total distributions		(619,610	)		(451,050	)		N/A			N/A

See Notes to the Financial Statements.

36

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,
			2006			2005			2006			2005
CAPITAL SHARE TRANSACTIONS — NO LOAD CLASS:
	Proceeds from shares sold			231,889,125			89,063,226			1,483,806			384,652
	Redemption fees			49,305			19,178			—			—
	Proceeds from shares issued to holders in reinvestment of dividends			449,467			338,406			43,276			20,405
	Cost of shares redeemed			(51,220,132	)		(76,175,619	)		(1,153,683	)		(519,245	)
		Net increase (decrease) in net assets resulting from no load class capital share transactions		181,167,765			13,245,191			373,399			(114,188	)
CAPITAL SHARE TRANSACTIONS — ADVISOR CLASS A:
	Proceeds from shares sold			8,331,786			3,263,742			N/A			N/A
	Redemption fees			179			2,745			N/A			N/A
	Proceeds from shares issued to holders in reinvestment of dividends			10,531			29,430			N/A			N/A
	Cost of shares redeemed			(3,144,103	)		(1,390,407	)		N/A			N/A
		Net increase in net assets resulting from Advisor Class A capital share transactions		5,198,393			1,905,510			N/A			N/A
CAPITAL SHARE TRANSACTIONS — INSTITUTIONAL CLASS:
	Proceeds from shares sold			118,326,043			67,454,811			N/A			N/A
	Redemption fees			1			—			N/A			N/A
	Proceeds from shares issued to holders in reinvestment of dividends			458,157			450,906			N/A			N/A
	Cost of shares redeemed			(11,089,755	)		(1,981,158	)		N/A			N/A
		Net increase in net assets resulting from Institutional Class capital share transactions		107,694,446			65,924,559			N/A			N/A
TOTAL INCREASE (DECREASE) IN NET ASSETS				362,141,347			90,138,346			373,399			(114,188	)

See Notes to the Financial Statements.

37

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,
			2006			2005			2006			2005
NET ASSETS:
Beginning of year				128,769,982			38,631,636			1,052,057			1,166,245
End of year*				490,911,329			128,769,982			1,425,456			1,052,057
*Including undistributed net investment income (loss) of:				(463,098	)		162,155			—			—
CHANGES IN SHARES OUTSTANDING — NO LOAD CLASS:
	Shares sold			9,482,826			4,480,908			1,483,806			384,652
	Shares issued in reinvestment of dividends and distributions			16,690			16,099			43,276			20,405
	Shares redeemed			(2,176,444	)		(3,744,356	)		(1,153,683	)		(519,245	)
		Net increase (decrease) in shares outstanding		7,323,072			752,651			373,399			(114,188	)
CHANGES IN SHARES OUTSTANDING — ADVISOR CLASS A:
	Shares sold			351,729			163,666			N/A			N/A
	Shares issued in reinvestment of dividends and distributions			394			1,409			N/A			N/A
	Shares redeemed			(135,387	)		(73,232	)		N/A			N/A
		Net increase in shares outstanding		216,736			91,843			N/A			N/A
CHANGES IN SHARES OUTSTANDING — INSTITUTIONAL CLASS:
	Shares sold			5,013,952			3,291,874			N/A			N/A
	Shares issued in reinvestments of dividends and distributions			17,017			21,472			N/A			N/A
	Shares redeemed			(461,586	)		(94,705	)		N/A			N/A
		Net increase in shares outstanding		4,569,383			3,218,641			N/A			N/A

See Notes to the Financial Statements.

38

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Statements of Changes in Net Assets — (Continued)

			The Market
			Opportunities Fund
			From January 31,
			2006^ through
			December 31,
			2006
OPERATIONS:
	Net investment income		$	20,887
	Net realized gain on sale of investments, foreign currency and written option contracts expired or closed			26
	Net change in unrealized appreciation of investments, foreign currency and written options			1,724,697
		Net increase in net assets resulting from operations		1,745,610
DISTRIBUTIONS TO SHAREHOLDERS — NO LOAD CLASS:
	Net investment income			(22,877	)
		Total distributions		(22,877	)
DISTRIBUTIONS TO SHAREHOLDERS — ADVISOR CLASS A:
	Net investment income			(21,653	)
		Total distributions		(21,653	)
CAPITAL SHARE TRANSACTIONS — NO LOAD CLASS:
	Proceeds from shares sold			7,234,940
	Redemption fees			1,277
	Proceeds from shares issued to holders in reinvestment of dividends			22,528
	Cost of shares redeemed			(238,682	)
		Net increase in net assets resulting from capital share transactions		7,020,063
CAPITAL SHARE TRANSACTIONS — ADVISOR CLASS A:
	Proceeds from shares sold			9,041,894
	Redemption fees			—
	Proceeds from shares issued to holders in reinvestment of dividends			20,168
	Cost of shares redeemed			(198,365	)
		Net increase in net assets resulting from capital share transactions		8,863,697
TOTAL INCREASE IN NET ASSETS				17,584,840
NET ASSETS:
	Beginning of period			—
	End of period*		$	17,584,840
*Including undistributed net investment loss of			$	(23,561	)
CHANGES IN SHARES OUTSTANDING — NO LOAD CLASS:
	Shares sold			683,888
	Shares issued in reinvestments of dividends and distributions			1,887
	Shares redeemed			(22,537	)
		Net increase in shares outstanding		663,238
CHANGES IN SHARES OUTSTANDING — ADVISOR CLASS A:
	Shares sold			815,515
	Shares issued in reinvestments of dividends and distributions			1,674
	Shares redeemed			(20,282	)
		Net increase in shares outstanding		796,907

^  Commencement of operations.

See Notes to the Financial Statements.

39

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements

December 31, 2006

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”), The Market Opportunities Fund (“Market Opportunities”) 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), March 20, 2000 (Small Cap) and January 31, 2006 (Market Opportunities). Each series, unlike many other investment companies which directly acquire and manage their own portfolios of securities, seeks to achieve 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 (January 31, 2006 with respect to The Market Opportunities Fund), 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.

40

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

Each Feeder Fund’s respective interest in the corresponding Master Portfolio as of December 31, 2006 is as follows:

	Interest in
	Master Portfolio
Internet Fund		99.994%
Emerging Fund		99.808%
Paradigm Fund		99.231%
Medical Fund		99.921%
Small Cap Fund		99.989%
Government Fund		98.123%
Market Opportunities Fund		99.931%

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. Effective January 31, 2006, the Market Opportunities Fund began issuing Advisor Class A shares. 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, except the Government Fund, will assess a 2.00% redemption fee (with exceptions) on shares redeemed or exchanged within 30 days of purchase.

41

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

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 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, 2006, 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.

42

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

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 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

43

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

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, 2006, 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 33¹/3% 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.

44

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

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 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.

45

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

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. Withholding taxes on foreign dividends have been provided for in accordance with the Company’s understanding of the applicable country’s tax rules and rates.

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 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. In addition to the voluntary reimbursement by the Adviser, U.S. Bancorp Fund Services, LLC (“USBFS”), the Company’s service provider, voluntarily agreed to waive all its service provider fees for the four months ended December 31, 2006 for consideration received through the Master Portfolios securities lending agreement. For the year ended December 31, 2006, 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	$	—	$	5,301
Expenses Reimbursed by USBFS	$	105,032	$	48,923

	Paradigm		Medical
Annual Advisory Rate		1.25%		1.25%
Expenses Reimbursed by Adviser	$	666,176	$	97,885
Expenses Reimbursed by USBFS	$	358,657	$	12,347

46

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

	Small Cap		Government
Annual Advisory Rate		1.25%		0.50%
Expenses Reimbursed by Adviser	$	243,074	$	29,795
Expenses Reimbursed by USBFS	$	75,663	$	3,766

		Market
		Opportunities
Annual Advisory Rate			1.25%
Expenses Reimbursed by Adviser		$	54,936
Expenses Reimbursed by USBFS	$	$	5,583

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, 2007. For the year ended December 31, 2006 the Adviser waived $354,998 and $177,145 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.

For the year ended December 31, 2006, 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, 2006, payments under the 12b-1 Plan for the Advisor Class A shares of the Internet, Paradigm, Medical, Small Cap and Market Opportunities 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, 2006, the Advisor

47

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

Class A shares of the Internet, Paradigm, Medical, Small Cap and Market Opportunities Funds incurred expenses of $608, $281,729, $1,608, $21,840 and $6,267, 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, 2006, Paradigm Advisor Class C shares incurred expenses of $537,917, pursuant to the 12b-1 Plan. Through December 31, 2006, 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, 2006, the Distributor received $23, $345,413, $892, $22,436 and $35,329 from sales loads from the Internet, Paradigm, Medical, Small Cap and Market Opportunities 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, 2006, each Fund recorded the following reclassifications to the accounts listed below:

	INCREASE (DECREASE)
				Accumulated
				Net			Accumulated
				Investment			Net Realized
	Paid-in-Capital			Income(Loss)			Loss
The Internet Fund	$	(2	)	$	1,895,091		$	(1,895,089	)
The Internet Emerging Growth Fund		—			32			(32	)
The Paradigm Fund		(25	)		(3,883	)		3,908
The Medical Fund		1			(5	)		4
The Small Cap Opportunities Fund		—			8,284			(8,284	)
The Kinetics Government Money Market Fund		—			—			—
The Market Opportunities Fund		—			82			(82	)

5.   Income Taxes

At December 31, 2006 the Internet, Emerging, Paradigm, Medical, Small Cap, Money Market and Market Funds had $273,295, $13,406, $1,159,307,

48

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

$17,907, $1,618,109, $— and $141,268, respectively, of undistributed net investment income on a tax basis.

At December 31, 2006 the Paradigm and Medical Funds had $82,678 and $92,912, respectively, of accumulated gains on a tax basis.

At December 31, 2006, the Feeder Funds had accumulated net realized capital loss carryovers expiring in the following years.

Feeder Fund	2014		2013		2011		2010		2009		2008
Internet	$	16,077,777	$	6,777,871	$	—	$	140,178,775	$	34,119,306	$	—
Emerging		—		4,885		887,154		2,635,504		5,481,052		2,349,885
Paradigm		—		—		—		—		—		—
Medical		—		—		—		—		—		—
Small Cap		1,137,258		499,629		—		—		—		—
Money Market		—		—		—		—		—		—
Market		21		—		—		—		—		—

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, 2006, Medical Fund and Emerging Fund utilized $22,109 and $138,311, respectively, of capital loss carryforward.

At December 31, 2006, the following Feeder Funds deferred, on a tax basis, post-October losses and straddle losses of:

Feeder Fund	Post-October Losses		Straddle Losses
Internet	$	254	$	647,971
Emerging		8,026		—
Paradigm		211,253		889
Medical		605,675		95,261
Small Cap		237		—
Money Market		—		—
Market		35		—

The tax components of dividends paid during the years ended December 31, 2006 and December 31, 2005, are:

	Internet				Emerging
	Ordinary		Long-Term		Ordinary		Long-Term
	Income		Capital Gains		Income		Capital Gains
	Distribution		Distribution		Distribution		Distribution
2006	$	517,918	$	—	$	136,199	$	—
2005	$	1,219,980	$	—	$	160,455	$	—

49

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

	Paradigm				Medical
	Ordinary		Long-Term		Ordinary		Long-Term
	Income		Capital Gains		Income		Capital Gains
	Distribution		Distribution		Distribution		Distribution
2006	$	12,435,794	$	3,162,407	$	29,493	$	1,054,815
2005	$	475,907	$	412,952	$	—	$	—

	Money Market				Small Cap
	Ordinary		Long-Term		Ordinary		Long-Term
	Income		Capital Gains		Income		Capital Gains
	Distribution		Distribution		Distribution		Distribution
2006	$	44,708	$	—	$	1,131,237	$	—
2005	$	21,059	$	—	$	436,587	$	391,110

	Market
	Ordinary		Long-Term
	Income		Capital Gains
	Distribution		Distribution
2006	$	44,530	$	—
2005		N/A		N/A

6.   Tax Information (Unaudited)

The Internet, Emerging, Paradigm, Medical, Small Cap, and Market Opportunities Funds designate 28%, 27%, 91%, 100%, 57% and 23%, respectively, of dividends declared after December 31, 2006 from net investment income as qualified dividend income under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

The Paradigm and Medical Funds hereby designate 80% and 3%, respectively, as ordinary income distributions and 20% and 97%, respectively, 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, 2006, which is designated as qualifying for the dividends-received deduction, is as follows: Internet 26%, Emerging 26%, Paradigm 47%, Medical 100%, Small Cap 42% and Market Opportunities 12%.

The Internet, Emerging, Paradigm, Medical, Small Cap, Money Market and Market Opportunities Funds designate 45%, 34%, 39%, 23%, 28%, 79% and 18%, respectively, of their ordinary income distributions for the fiscal year as interest-related dividends under Internal Revenue Code Section 871(k)(l)(C).

50

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

The Internet, Emerging, Paradigm, Medical, Small Cap, Money Market and Market Opportunities Funds designate 0%, 0%, 0%, 0%, 0%, 0% and 0%, respectively, of their ordinary income distributions as short-term capital gain distributions under Internal Revenue Code Section
871(k)(2)(C).

7.   New Accounting Pronouncements (Unaudited)

In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trusts’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. To the extent that a tax benefit of a position is not deemed to meet the more-likely-than-not threshold, the Trusts would report an income tax expense in the statement of operations. Adoption of FIN 48 is required to be implemented no later than June 29, 2007 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48, and the impact, if any, of this standard on the Trusts’ financial statements has not yet been determined.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” The Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Statement establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and is to be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied. At this time, management is evaluating the implications of FAS 157, and the impact, if any, of this standard on the Trusts’ financial statements has not yet been determined.

51

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Notes to Financial Statements — (Continued)

December 31, 2006

8.   Information about Proxy Voting (Unaudited)

Information regarding how Kinetics Mutual Funds, Inc. votes proxies relating to portfolio securities is available without charge, upon request by calling toll-free at 1-800-930-3828 or by accessing the Funds’ website at www.kineticsfunds.com and by accessing the SEC’s website at www.sec.gov. Information regarding how the Funds voted proxies relating to portfolio securities during the most recent twelve month period ended June 30, is 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.

9.   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.

52

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53

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Financial Highlights

					The Internet 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,
					2006			2006			2005			2005			2004
PER SHARE DATA(1)
	Net Asset Value,
		Beginning of Year			$	24.66		$	24.40		$	25.29		$	24.93		$	23.31
Income from Investment Operations:
		Net investment income (loss)				(0.08)	(3)		(0.14)	(3)		0.11	(3)		0.05	(3)		0.10	(3)
		Net realized and unrealized gain (loss) on investments				4.15			4.09			(0.54	)		(0.44	)		2.25
				Total from investment operations		4.07			3.95			(0.43	)		(0.39	)		2.35
	Redemption fees					0.00	(4)		—			0.00	(4)		0.00	(4)		—
	Less Distributions:
		From net investment income				(0.11	)		(0.11	)		(0.20	)		(0.14	)		(0.37	)
				Total distributions		(0.11	)		(0.11	)		(0.20	)		(0.14	)		(0.37	)
	Net Asset Value, End of Year				$	28.62		$	28.24		$	24.66		$	24.40		$	25.29
	Total Return(2)					16.50	%		16.18	%		(1.69	)%		(1.55	)%		10.06	%
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of year (000’s)				$	137,012		$	235		$	148,260		$	300		$	201,929
	Ratio of expenses to average net assets:
			Before expense reimbursement			1.98	%		2.23	%		2.35	%		2.60	%		2.37	%
			After expense reimbursement			1.85	% (5)		2.10	%(5)		2.35	%		2.60	%		2.37	%
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			(0.42	)%		(0.67	)%		0.46	%		0.21	%		0.44	%
			After expense reimbursement			(0.29	)%(5)		(0.54	)%(5)		0.46	%		0.21	%		0.44	%
	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 total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares.
(3)	Net investment income (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period.
(4)	The amount is less than $0.005 per share.
(5)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

54

The Internet Fund
	Advisor Class A			No Load Class			Advisor Class A			No Load Class			Advisor Class A
	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,
	2004			2003			2003			2002			2002
	$	22.88		$	16.69		$	16.47		$	21.80		$	21.75
		0.05	(3)		0.03			(0.82	)		(0.08	)(3)		(0.12	)(3)
		2.23			6.66			7.23			(5.03	)		(5.16	)
		2.28			6.69			6.41			(5.11	)		(5.28	)
		—			—			—			—			—
		(0.23	)		(0.07	)		—			—			—
		(0.23	)		(0.07	)		—			—			—
	$	24.93		$	23.31		$	22.88		$	16.69		$	16.47
		9.95	%		40.11	%		38.92	%		(23.44	)%		(24.28	)%
	$	354		$	230,971		$	428		$	189,618		$	507
		2.62	%		2.39	%		2.64	%		2.42	%		2.67	%
		2.62	%		2.39	%		2.64	%		2.42	%		2.67	%
		0.19	%		0.11	%		(0.14	)%		(0.41	)%		(0.66	)%
		0.19	%		0.11	%		(0.14	)%		(0.41	)%		(0.66	)%
		N/ A			N/A			N/A			N/A			N/A

See Notes to the Financial Statements.

55

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,
					2006			2005			2004			2003			2002
PER SHARE DATA(1)
	Net Asset Value,
		Beginning of Year			$	4.43		$	4.50		$	4.28		$	3.24		$	4.30
	Income from Investment Operations:
		Net investment income (loss)				0.13			0.15			0.08			0.04			(0.08	)
		Net realized and unrealized gain (loss) on investments				0.62			(0.03	)		0.25			1.05			(0.98	)
				Total from investment operations		0.75			0.12			0.33			1.09			(1.06	)
	Redemption fees					0.00	(2)		0.00	(2)		—			—			—
	Less Distributions:
		From net investment income				(0.18	)		(0.19	)		(0.11	)		(0.05	)		—
				Total distributions		(0.18	)		(0.19	)		(0.11	)		(0.05	)		—
Net Asset Value, End of Year					$	5.00		$	4.43		$	4.50		$	4.28		$	3.24
				Total Return		16.90	%		2.65	%		7.67	%		33.56	%		(24.65	)%
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of year (000’s)				$	3,991		$	3,896		$	4,584		$	4,677		$	3,338
	Ratio of expenses to average net assets:
			Before expense reimbursement			3.09	%		3.22	%		3.45	%		3.64	%		3.78	%
			After expense reimbursement			1.39	%(3)		2.69	%		2.67	%		2.74	%		2.74	%
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			3.00	%		2.80	%		1.08	%		0.11	%		(3.03	)%
			After expense reimbursement			1.30	%(3)		3.33	%		1.84	%		1.01	%		(1.99	)%
	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.
(3)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

56

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57

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Financial Highlights

					The Paradigm Fund
								Advisor			Advisor			Institutional						Advisor
					No Load Class			Class A			Class C			Class			No Load Class			Class A
					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,
					2006			2006			2006			2006			2005			2005
PER SHARE DATA(1)
	Net Asset Value, Beginning of Period				$	20.33		$	20.08		$	19.76		$	20.31		$	17.54		$	17.40
	Income from Investment Operations:
		Net investment income (loss)				0.14	(6)		0.08	(6)		(0.03	)(6)		0.19	(6)		(0.03	)(6)		(0.07	)(6)
		Net realized and unrealized gain (loss) on investments				5.52			5.43			5.33			5.49			2.82			2.77
				Total from investment operations		5.66			5.51			5.30			5.68			2.79			2.70
	Redemption fees					0.00	(2)		0.00	(2)		0.00	(2)		—			0.03			0.00	(2)
	Less Distributions:
		From net investment income				(0.16	)		(0.12	)		(0.04	)		(0.19	)		(0.01	)		—
		From net realized gains				(0.04	)		(0.04	)		(0.04	)		(0.04	)		(0.02	)		(0.02	)
				Total distributions		(0.20	)		(0.16	)		(0.08	)		(0.23	)		(0.03	)		(0.02	)
	Net Asset Value, End of Period				$	25.79		$	25.43		$	24.98		$	25.76		$	20.33		$	20.08
	Total Return(5)					27.81	%		27.42	%		26.82	%		27.96	%		16.11	%		15.54	%
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of period (000’s)				$	1,337,761		$	183,031		$	116,226		$	507,314		$	418,914		$	60,421
	Ratio of expenses to average net assets:
			Before expense reimbursement and waivers(7)			1.79	%		2.04	%		2.54	%		1.74	%		1.93	%		2.18	%
			After expense reimbursement			1.63	% (8)		1.88	% (8)		2.38	% (8)		1.43	% (8)		1.69	%		1.94	%
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			0.44	%		0.19	%		(0.31	)%		0.48	%		(0.41	)%		(0.66	)%
			After expense reimbursement			0.60	% (8)		0.35	% (8)		(0.15	)%(8)		0.79	% (8)		(0.17	)%		(0.42	)%
	Portfolio turnover rate					N/A			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 (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period.
(7)	See footnote #3 for the Investment Adviser, waiver discussion.
(8)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

58

The Paradigm Fund
	Advisor			Institutional Class			No Load			Advisor			Advisor			No Load			Advisor			Advisor			No Load
	Class C			For the Period			Class			Class A			Class C			Class			Class A			Class C			Class
	For the			May 27, 2005^			For the			For the			For the			For the			For the			For the			For the
	Year Ended			through			Year Ended			Year Ended			Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
	December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,			December 31,
	2005			2005			2004			2004			2004			2003			2003			2003			2002
	$	17.21		$	18.13		$	14.91		$	14.82		$	14.73		$	10.12		$	10.07		$	10.05		$	10.61
		(0.17	)(6)		0.01	(2)(6)		(0.06	)(6)		(0.10	)		(0.18	)		0.05			0.08			0.02			(0.14	)
		2.74			2.23			3.17			3.16			3.14			4.79			4.70			4.67			(0.35	)
		2.57			2.24			3.11			3.06			2.96			4.84			4.78			4.69			(0.49	)
				��
		0.00	(2)		—			—			—			—			—			—			—			—
		—			(0.04	)		(0.02	)		(0.02	)		(0.02	)		(0.05	)		(0.03	)		(0.01	)		—
		(0.02	)		(0.02	)		(0.46	)		(0.46	)		(0.46	)		—			—			—			—
		(0.02	)		(0.06	)		(0.48	)		(0.48	)		(0.48	)		(0.05	)		(0.03	)		(0.01	)		—
	$	19.76		$	20.31		$	17.54		$	17.40		$	17.21		$	14.91		$	14.82		$	14.73		$	10.12
		14.96	%		12.35	%(3)		20.84	%		20.63	%		20.08	%		47.87	%		47.47	%		46.68	%		(4.62	)%
	$	38,740		$	10,895		$	89,313		$	26,525		$	9,426		$	57,646		$	13,157		$	2,125		$	5,044
		2.68	%		1.88	%(4)		2.10	%		2.35	%		2.85	%		2.24	%		2.49	%		2.99	%		2.97	%
		2.44	%		1.49	%(4)		1.74	%		1.99	%		2.49	%		1.74	%		1.99	%		2.49	%		2.74	%
		(1.16	)%		(0.37	)%(4)		(0.77	)%		(1.02	)%		(1.52	)%		0.57	%		0.32	%		(0.18	)%		(1.61	)%
		(.92	)%		0.02	%(4)		(0.41	)%		(0.66	)%		(1.16	)%		1.07	%		0.82	%		0.32	%		(1.38	)%
		N/A			N/A			N/A			N/A			N/A			N/A			N/A			N/A			N/A

See Notes to the Financial Statements.

59

					The Paradigm Fund
					Advisor Class A			Advisor Class C
					For the			June 28, 2002(+)
					Year Ended			through
					December 31,			December 31,
					2002			2002
PER SHARE DATA(1)
	Net Asset Value, Beginning of Period				$	10.58		$	10.64
	Income from Investment Operations:
		Net investment income (loss)				(0.17	)		(0.11	)
		Net realized and unrealized gain (loss) on investments				(0.34	)		(0.48	)
				Total from investment operations		(0.51	)		(0.59	)
	Redemption fees					—			—
	Less Distributions:
		From net investment income				—			—
		From net realized gains				—			—
				Total distributions	��	—			—
	Net Asset Value, End of Period				$	10.07		$	10.05
	Total Return(6)					(4.82	)%		(5.55	)(3)
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of period (000’s)				$	4,943		$	519
	Ratio of expenses to average net assets:
			Before expense reimbursement			3.22	%		3.72	%(4)
			After expense reimbursement			2.99	%		3.49	%(4)
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			(1.86	)%		(2.36	)%(4)
			After expense reimbursement			(1.63	)%		(2.13	)%(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 (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period.

See Notes to the Financial Statements.

60

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61

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,
					2006			2006			2005			2005			2004
PER SHARE DATA(1)
	Net Asset Value,
		Beginning of Year			$	16.64		$	16.34			16.76			16.49		$	15.67
	Income from Investment Operations:
		Net investment income (loss)				0.06	(3)		0.01	(3)		(0.18	)(3)		(0.22	)(3)		(0.10	)(3)
		Net realized and unrealized gain (loss) on investments				2.40			2.35			0.06			0.07			1.19
				Total from investment operations		2.46			2.36			(0.12	)		(0.15	)		1.09
	Redemption fees					0.00	(4)		—			0.00(4	)		—			—
	Less Distributions:
		From net investment income				(0.04	)		—			—			—			—
		From net realized gains				(1.23	)		(1.23	)		—			—			—
				Total distributions		(1.27	)		(1.23	)		—			—			—
	Net Asset Value, End of Year				$	17.83		$	17.47		$	16.64		$	16.34		$	16.76
	Total Return(2)					14.81	%		14.49	%		(0.72	)%		(0.91	)%		6.96	%
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of year (000’s)				$	15,527		$	711		$	13,943		$	559		$	19,583
	Ratio of expenses to average net assets:
			Before expense reimbursement			2.28	%		2.53	%		2.48	%		2.73	%		2.54	%
			After expense reimbursement			1.44	% (5)		1.69	%(5)		2.44	%		2.69	%		2.39	%
	Ratio of net investment loss to average net assets:
			Before expense reimbursement			(0.51	)%		(0.76	)%		(1.14	)%		(1.39	)%		(1.31	)%
After expense reimbursement						0.33	% (5)		0.08	%(5)		(1.10	)%		(1.35	)%		(1.16	)%
	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 total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares.
(3)	Net investment income (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period.
(4)	The amount is less than $0.005 per share.
(5)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

62

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			For the
Year Ended			Year Ended			Year Ended			Year Ended			Year Ended
December 31,			December 31,			December 31,			December 31,			December 31,
2004			2003			2003			2002			2002
$	15.47		$	12.72		$	12.61		$	18.06		$	18.01
	(0.11	)(3)		(0.25	)		(0.63	)		(0.21	)		(0.24	)
	1.13			3.20			3.49			(5.05	)		(5.08	)
	1.02			2.95			2.86			(5.26	)		(5.32	)
	—			—			—			—			—
	—			—			—			—			—
	—			—			—			(0.08	)		(0.08	)
	—			—			—			(0.08	)		(0.08	)
$	16.49		$	15.67		$	15.47		$	12.72		$	12.61
	6.59	%		23.19	%		22.68	%		(29.14	)%		(29.56	)%
$	696		$	23,695		$	758		$	22,604		$	794
	2.79	%		2.52	%		2.77	%		2.55	%		2.80	%
	2.64	%		2.52	%		2.77	%		2.55	%		2.80	%
	(1.56	)%		(1.55	)%		(1.80	)%		(1.49	)%		(1.74	)%
	(1.41	)%		(1.55	)%		(1.80	)%		(1.49	)%		(1.74	)%
	N/ A			N/A			N/A			N/A			N/A

See Notes to the Financial Statements.

63

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Financial Highlights

					The Small Cap Opportunities Fund
					No Load Class			Advisor Class A			Institutional Class			No Load Class			Advisor Class A			Institutional Class
					For the			For the			For the			For the			For the			For the Period
					Year Ended			Year Ended			Year Ended			Year Ended			Year Ended			August 12, 2005^
					December 31,			December 31,			December 31,			December 31,			December 31,			through
					2006			2006			2006			2005			2005			December 31, 2005
PER SHARE DATA(3)
	Net Asset Value, Beginning of Period				$	21.02		$	20.89		$	21.00		$	18.69		$	18.63		$	20.48
	Income from Investment Operations:
		Net investment income (loss)				0.03	(5)		(0.03	)(5)		0.08	(5)		0.12	(5)		0.02	(5)		0.00	(5)(6)
		Net realized and unrealized gain (loss) on investments				5.92			5.88			5.91			2.35			2.38			0.67
				Total from investment operations		5.95			5.85			5.99			2.47			2.40			0.67
	Redemption fees					0.00	(6)		0.00	(6)		0.00	(6)		0.00	(6)		0.00	(6)		—
	Less Distributions:
		From net investment income				(0.05	)		(0.03	)		(0.08	)		(0.01	)		(0.01	)		(0.02	)
		From net realized gains				—			—			—			(0.13	)		(0.13	)		(0.13	)
				Total distributions		(0.05	)		(0.03	)		(0.08	)		(0.14	)		(0.14	)		(0.15	)
	Net Asset Value, End of Period				$	26.92		$	26.71		$	26.91		$	21.02		$	20.89		$	21.00
	Total Return(4)					28.37	%		28.03	%		28.52	%		13.17	%		12.83	%		3.23	%(1)
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of period (000’s)				$	268,875		$	12,444		$	209,592		$	55,979		$	5,205		$	67,586
	Ratio of expenses to average net assets:
			Before expense reimbursement			1.83	%		2.08	%		1.78	%		1.93	%		2.16	%		1.77	%(2)
			After expense reimbursement			1.58	% (7)		1.83	%(7)		1.38	%(7)		1.66	%		1.94	%		1.59	%(2)
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			(0.14	)%		(0.39	)%		(0.09	)%		0.18	%		(0.17	)%		(0.21)	%(2)
			After expense reimbursement			0.11	% (7)		(0.14)	% (7)		0.31	%(7)		0.45	%		0.06	%		(0.03)	%(2)
	Portfolio turnover rate					N/A			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 (loss) per share represents net investment income (loss) divided by the average shares outstanding throughout the period.
(6)	The amount is less than $0.005 per share.
(7)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

64

The Small Cap Opportunities Fund
No Load Class			Advisor Class A			No Load Class			Advisor Class A			No Load Class			Advisor Class A
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			2002			2002
$	16.55		$	16.50		$	10.04		$	10.03		$	14.50		$	14.50
	0.22	(5)		0.18	(5)		0.25			0.15			(0.18	)(5)		(0.20	)(5)
	2.49			2.49			6.43			6.47			(4.21	)		(4.20	)
	2.71			2.67			6.68			6.62			(4.39	)		(4.40	)
	—			—			—			—			—			—
	(0.16	)		(0.13	)		(0.17	)		(0.15	)		—			—
	(0.41	)		(0.41	)		—			—			(0.07	)		(0.07	)
	(0.57	)		(0.54	)		(0.17	)		(0.15	)		(0.07	)		(0.07	)
$	18.69		$	18.63		$	16.55		$	16.50		$	10.04		$	10.03
	16.40	%		16.17	%		66.51	%		65.98	%		(30.28	)%		(30.35	)%
$	35,702		$	2,929		$	23,665		$	2,075		$	3,313		$	172
	2.03	%		2.28	%		2.34	%		2.59	%		2.95	%		3.20	%
	1.74	%		1.99	%		2.34	%		2.59	%		2.74	%		2.99	%
	1.01	%		0.76	%		2.14	%		1.89	%		(1.59	)%		(1.84	)%
	1.30	%		1.05	%		2.14	%		1.89	%		(1.38	)%		(1.63	)%
	N/A			N/A			N/A			N/A			N/A			N/A

See Notes to the Financial Statements.

65

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,
					2006			2005			2004			2003			2002
PER SHARE DATA(1)
	Net Asset Value, Beginning of Year				$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
	Income from Investment Operations:
		Net investment income				0.04			0.02			—			—			0.00	(2)
		Net realized and unrealized gain on investments				—			—			—			—			—
				Total from investment operations		0.04			0.02			—			—			0.00	(2)
	Less Distributions:
		From net investment income				(0.04	)		(0.02	)		—			—			(0.00	)(2)
				Total distributions		(0.04	)		(0.02	)		—			—			(0.00	)(2)
	Net Asset Value, End of Year				$	1.00		$	1.00		$	1.00		$	1.00		$	1.00
	Total Return					4.45	%		1.88	%		0.00	%		0.00	%		0.22	%
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of year (000’s)				$	1,425		$	1,052		$	1,166		$	3,048		$	128,657
	Ratio of expenses to average net assets:
			Before expense reimbursement			3.94	% (3)		5.08	%		2.11	%		1.32	%		1.29	%
			After expense reimbursement			0.22	% (3)		1.06	%		0.98	%		0.94	%		1.23	%
	Ratio of net investment income (loss) to average net assets:
			Before expense reimbursement			0.73	%		(2.17	)%		(1.13	)%		(0.38	)%		0.13	%
			After expense reimbursement			4.45	% (3)		1.85	%		0.00	%		0.00	%		0.19	%
	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 listed is less than $0.005 per share.
(3)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

66

KINETICS MUTUAL FUNDS, INC. — FEEDER FUNDS

Financial Highlights

				The Market Opportunities
				Fund
				No Load Class			Advisor Class A
				January 31, 2006^			January 31, 2006^
				through			through
				December 31, 2006			December 31, 2006
PER SHARE DATA(3)
	Net Asset Value, Beginning of Period			$	10.00		$	10.00
	Income from Investment Operations:
		Net investment income			0.04			0.02
		Net realized and unrealized loss on investments			2.05			2.05
			Total from investment operations		2.09			2.07
	Redemption fees				0.00	(6)		—
	Less Distributions:
		From net investment income			(0.04	)		(0.03	)
			Total distributions		(0.04	)		(0.03	)
	Net Asset Value, End of Period			$	12.05		$	12.04
	Total Return(4)				20.85	%(1)		20.68	%(1)
SUPPLEMENTAL DATA AND RATIOS
	Net assets, end of period (000’s)			$	7,994		$	9,591
	Ratio of expenses to average net assets:
		Before expense reimbursement			2.68	%(2)		2.93	%(2)
		After expense reimbursement			1.46	%(2)(7)		1.71	%(2)(7)
	Ratio of net investment income to average net assets:
		Before expense reimbursement			(0.76)	%(2)		(1.01)	%(2)
		After expense reimbursement			0.46	%(2)(7)		0.21	%(2)(7)
	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.
(7)	See footnote #3 for service provider, waiver discussion.

See Notes to the Financial Statements.

67

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, The Kinetics Government Money Market Fund and The Market Opportunities Fund, each a series of shares of Kinetics Mutual Funds, Inc. (the “Funds”), as of December 31, 2006, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the three years in the period then ended except for The Market Opportunities Fund’s statement of operations, statement of changes in net assets and financial highlights for the period January 31, 2006 through December 31, 2006. 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 audits. 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, nor were the Funds required to have, an audit of its’ 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 audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly in all material respects, the financial position of the above mentioned Funds as of December 31, 2006, the results of their operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the three years in the period then ended except for The Market Opportunities Fund’s statement of operations, statement of changes in net

68

assets and financial highlights for the period January 31, 2006 through December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania

March 1, 2007

69

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

ALLOCATION OF PORTFOLIO ASSETS

December 31, 2006

The Internet Portfolio

The Internet Emerging Growth Portfolio

70

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

ALLOCATION OF PORTFOLIO ASSETS

December 31, 2006 — (Continued)

The Paradigm Portfolio

The Medical Portfolio

71

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

ALLOCATION OF PORTFOLIO ASSETS

December 31, 2006 — (Continued)

The Small Cap Opportunities Portfolio

Government Money Market Portfolio

72

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

ALLOCATION OF PORTFOLIO ASSETS

December 31, 2006 — (Continued)

The Market Opportunities Portfolio

73

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Investments — December 31, 2006

COMMON STOCKS — 88.34%†	Shares		Value
Aerospace & Defense — 5.84%†
CACI International, Inc. — Class A*		142,000	$	8,023,000
Air Freight & Logistics — 4.84%†
Expeditors International of Washington, Inc.		164,000		6,642,000
Asian Exchanges — 3.65%†
Hong Kong Exchanges & Clearing Limited		180,000		1,978,581
Osaka Securities Exchange Co., Ltd.		72		360,590
Singapore Exchange Limited		720,000		2,675,795
				5,014,966
Brokerage & Investment Banking — 0.07%†
ICAP plc		10,000		93,689
Capital Markets — 0.18%†
Collins Stewart plc*		4,000		19,893
Internet HOLDRs Trust		500		26,225
Thomas Weisel Partners Group, Inc.*		4,000		84,400
Tullett Prebon plc*		4,000		50,907
Van der Moolen Holding N.V. ADR		10,172		59,710
				241,135
Commercial Services & Supplies — 3.78%†
Comdisco Holding Company, Inc.		194,400		2,293,920
Ritchie Bros. Auctioneers Incorporated		54,000		2,891,160
				5,185,080
Computers & Peripherals — 0.12%†
Apple Computer, Inc.*		2,000		169,680
Derivative Exchanges — 7.19%†
CBOT Holdings, Inc. — Class A*		12,800		1,938,816
Chicago Mercantile Exchange Holdings Inc.		6,400		3,262,400
International Securities Exchange, Inc.		84,000		3,930,360
Nymex Holdings, Inc.*(1)		6,000		744,060
				9,875,636
Diversified Consumer Services — 0.06%†
Apollo Group, Inc. — Class A*		2,000		77,940

See Notes to the Financial Statements.

74

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Diversified Telecommunication Services — 10.36%†
Leucadia National Corporation		500,000	$	14,100,000
XO Holdings Inc.*		30,000		129,000
				14,229,000
European Exchanges — 1.38%†
Euronext NV		7,200		850,637
London Stock Exchange Group plc*		36,352		932,413
OMX AB		6,000		110,430
				1,893,480
Internet & Catalog Retail — 0.17%†
eBay, Inc.*		6,000		180,420
IAC/ InterActiveCorp*		1,000		37,160
Overstock.com, Inc.*(1)		1,000		15,800
				233,380
Internet Software & Services — 1.59%†
Baidu.com, Inc. ADR*		200		22,544
Google Inc. — Class A*		1,800		828,864
NetRatings, Inc.*		76,000		1,330,760
				2,182,168
IT Services — 11.24%†
CheckFree Corporation*		256,000		10,280,960
ManTech International Corporation — Class A*		140,000		5,156,200
				15,437,160
Leisure Equipment & Products — 0.01%†
Marvel Entertainment, Inc.*		322		8,665

See Notes to the Financial Statements.

75

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Media — 19.81%†
DreamWorks Animation SKG, Inc.*		92,000	$	2,713,080
Gemstar-TV Guide International, Inc.*		600,000		2,406,000
Getty Images, Inc.*		34,600		1,481,572
Groupe Bruxelles Lambert S.A.		20,000		2,403,802
Harris Interactive, Inc.*		400,000		2,016,000
Liberty Global, Inc. — Class A*		150,257		4,379,991
Liberty Global, Inc. — Series C*		212,707		5,955,796
PrimaCom AG ADR*		610,000		2,915,861
ProQuest Company*		5,000		52,250
The Walt Disney Company		1,380		47,293
The Washington Post Company — Class B		3,600		2,684,160
XM Satellite Radio Holdings, Inc. — Class A*		10,000		144,500
				27,200,305
Other Exchanges — 3.19%†
Australian Stock Exchange Limited		6,000		180,682
IntercontinentalExchange Inc.*		32,000		3,452,800
JSE Limited		36,000		269,490
TSX Group, Inc.		12,000		479,630
				4,382,602
Security Brokers, Dealers, And Flotation Companies — 0.04%†
GFI Group, Inc.*		1,000		62,260
Specialists — 0.87%†
LaBranche & Co Inc.*(1)		122,000		1,199,260
U.S. Equity Exchanges — 13.95%†
Nasdaq Stock Market Inc.*		180,000		5,542,200
NYSE Group Inc.*(1)		140,000		13,608,000
				19,150,200
Wireless Telecommunication Services — 0.00%†
Sunshine PCS Corporation — Class A*		149,890		2,248
TOTAL COMMON STOCKS (cost $76,183,490)				121,303,854

See Notes to the Financial Statements.

76

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

CONVERTIBLE PREFERRED STOCKS — 0.00%†		Shares		Value
Media — 0.00%†
Adelphia Communications Corporation 7.500%*
	(cost $583,300)		190,000	$	0

	Principal
CONVERTIBLE BONDS — 1.34%†	Amount
Diversified Telecommunication Services — 1.34%†
Level 3 Communications, Inc., CLB, 6.000%, due 03/15/2010	$	2,000,000	1,845,000
Media — 0.00%†
Adelphia Communications Corporation, 6.000%, due 02/15/2006, Acquired on 2/10/2004 at $123,000 (Default Effective 8/12/2002)(1)		200,000	120
TOTAL CONVERTIBLE BONDS (cost $1,445,311)			1,845,120

CORPORATE BONDS — 2.70%†
Diversified Telecommunication Services — 2.70%†
Level 3 Communications, Inc., CLB, 12.875%, due 03/15/2010^ (cost $2,862,921)	3,600,000	3,703,500

RIGHTS 2.23%†		Shares
Commercial Services & Supplies — 2.23%†
Comdisco Holding Company, Inc. Expiration Date: 12/31/2050, Strike Price $1.00#
	(cost $3,253,775)		12,240,699	3,060,175

See Notes to the Financial Statements.

77

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

PUT OPTIONS PURCHASED — 0.01%†		Contracts		Value
Internet HOLDRs Trust Expiration: January, 2007, Exercise Price: $70.000
	(cost $7,161)		7	$	11,760

	Principal
SHORT-TERM INVESTMENTS — 2.13%†	Amount
Investment Companies — 0.01%†
First American Prime Obligations Fund — Class I	$	14,873	14,873
US Government Agency Issues — 2.12%†
Federal Home Loan Bank Discount Note, 0.000%, due 01/02/2007		2,913,000	2,912,626
TOTAL SHORT-TERM INVESTMENTS (cost $2,927,499)			2,927,499

INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING — 11.74%†	Shares
Investment Companies — 11.74%†
Mount Vernon Securities Lending Trust — Prime Portfolio (cost $16,115,000)		16,115,000		16,115,000
TOTAL INVESTMENTS — 108.49%† (cost $103,378,457)			$	148,966,908

Percentages are stated as a percent of net assets.

* — Non-income producing security.

(+) — Security has a stepped rate. The rate listed as of December 31, 2006.

† — Calculated as a percentage of net assets.

# — Contingent value right (contingent upon profitability of company).

ADR — American Depository Receipts.

CLB — Callable Security.

(1) —	This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $15,572,927 at December 31, 2006.
(2) —	All or a portion of the shares have been committed as collateral for written option.

See Notes to the Financial Statements.

78

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Investments — December 31, 2006

COMMON STOCKS — 75.18%†	Shares		Value
Aerospace & Defense — 4.88%†
SI International, Inc.*		6,000	$	194,520
Asian Exchanges — 3.39%†
Osaka Securities Exchange Co., Ltd.		27		135,221
Business Services — 2.25%†
Fidelity National Information Services, Inc.		2,242		89,882
Capital Markets — 5.12%†
Nasdaq-100 Index Tracking Stock		4,000		172,640
Thomas Weisel Partners Group, Inc.*		1,500		31,650
				204,290
Commercial Services & Supplies — 4.71%†
Comdisco Holding Company, Inc.		9,300		109,740
Deluxe Corporation		1,100		27,720
John H. Harland Company		1,000		50,200
				187,660
Computers & Peripherals — 2.88%†
SanDisk Corp.*		2,672		114,976
Derivative Exchanges — 4.90%†
Chicago Mercantile Exchange Holdings Inc.		200		101,950
International Securities Exchange, Inc.		2,000		93,580
				195,530
Diversified Financial Services — 2.12%†
eSPEED, Inc. — Class A*		5,000		43,650
MarketAxess Holdings, Inc.*		3,000		40,710
				84,360
Diversified Telecommunication Services — 8.15%†
IDT Corporation*		3,000		40,590
IDT Corporation — Class B*		3,000		39,240
Lynch Interactive Corporation*		51		159,375
Warwick Valley Telephone Company		1,200		21,288
XO Holdings Inc.*		15,000		64,500
				324,993
Gaming — 1.78%
Melco International Development Limited*		30,000		71,121

See Notes to the Financial Statements.

79

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Insurance — 3.06%†
Fidelity National Financial Inc.		5,102	$	121,836
Internet Software & Services — 4.44%†
Digital River, Inc.*		1,000		55,790
NetRatings, Inc.*		3,000		52,530
Websense, Inc.*		3,000		68,490
				176,810
IT Services — 0.49%†
Lionbridge Technologies, Inc.*		3,000		19,320
Media — 21.24%†
Discovery Holding Company — Class A*		50		804
The E.W. Scripps Company — Class A		1,000		49,940
Gemstar-TV Guide International, Inc.*		5,000		20,050
Groupe Bruxelles Lambert S.A.		1,600		192,304
Interactive Data Corporation		8,500		204,340
Liberty Global, Inc. — Class A*		30		875
Liberty Global, Inc. — Series C*		30		840
Liberty Media Holding Corporation — Capital Series A*		25		2,450
Liberty Media Holding Corporation — Interactive A*		126		2,718
Naspers Limited ADR		7,470		179,056
PrimaCom AG ADR*		4,750		22,705
RCN Corporation*		5,661		170,679
				846,761
Software — 0.85%†
FactSet Research Systems, Inc.		600		33,888
Transportation Infrastructure — 2.48%†
Beijing Capital International Airport Company Limited — Class H		90,000		70,465
Macquarie Airports		10,000		28,417
				98,882
U.S. Equity Exchanges — 2.44%†
NYSE Group Inc.*(1)		1,000		97,200

See Notes to the Financial Statements.

80

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

		Shares		Value
Wireless Telecommunication Services — 0.00%†
Sunshine PCS Corporation — Class A*			6,000	$	90
TOTAL COMMON STOCKS (cost $1,901,803)					2,997,340
PREFERRED STOCKS — 0.05%†
Diversified Telecommunication Services — 0.05%†
PTV, Inc. — Series A, CLB, 10.000%
	(cost $3,774)		487		1,948
Principal CONVERTIBLE BONDS — 3.75%† Amount
Semiconductor Equipment & Products — 3.75%†
Conexant Systems, Inc., CLB, 4.000%, due 02/01/2007
	(cost $148,561)	$	150,000		149,437
CORPORATE BONDS — 5.80%†
Diversified Telecommunication Services — 5.80%†
Level 3 Communications, Inc., CLB, 12.875%, due 03/15/2010^
	(cost $209,757)		225,000		231,469
RIGHTS — 3.64%† Shares
Commercial Services & Supplies — 3.64%†
Comdisco Holding Company, Inc. Expiration Date: 12/31/2050, Strike Price $1.00#
	(cost $245,273)		581,000		145,250

See Notes to the Financial Statements.

81

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

PUT OPTIONS PURCHASED — 0.00%†		Contracts		Value
Nasdaq-100 Index Tracking Stock
	Expiration: January, 2007, Exercise Price: $38.625		28	$	70
	Expiration: January, 2007, Exercise Price: $39.625		28		70
TOTAL OPTIONS PURCHASED (cost $22,568)					140

	Principal
SHORT-TERM INVESTMENTS — 10.67%†	Amount		Value
US Government Agency Issues — 7.82%†
Federal Home Loan Bank Discount Note, 0.000%, due 01/02/2007	$	312,000	$	311,960
Variable Rate Demand Notes** — 2.85%†
American Family, 4.943%		100,000		100,000
U.S. Bank, N.A. 5.070%		1,025		1,025
Wisconsin Corporate Central Credit Union, 4.990%		12,377		12,377
				113,402
TOTAL SHORT-TERM INVESTMENTS (cost $425,362)				425,362

See Notes to the Financial Statements.

82

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING — 2.51%†	Shares		Value
Investment Companies — 2.51%†
Mount Vernon Securities Lending Trust — Prime Portfolio (Cost $100,000)		100,000	$	100,000
TOTAL INVESTMENTS — 101.60%† (cost $3,057,098)			$	4,050,946

Percentages are stated as a percent of net assets.

* — 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, 2006.

(+) — Security has a stepped rate. The rate listed as of December 31, 2006.

† — Calculated as a percentage of net assets.

# — Contingent value right (contingent upon profitability of company).

ADR — American Depository Receipts.

CLB — Callable Security.

(1) —	This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $97,200 at December 31, 2006.
(2) —	All or a portion of the shares have been committed as collateral for written option contracts.

See Notes to the Financial Statements.

83

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Paradigm Portfolio

Portfolio of Investments — December 31, 2006

COMMON STOCKS — 83.96%†	Shares		Value
Aerospace & Defense — 0.86%†
CACI International, Inc. — Class A*		330,000	$	18,645,000
General Dynamics Corporation		400		29,740
SAIC, Inc.*		4,000		71,160
SRA International, Inc. — Class A*		2,400		64,176
				18,810,076
Air Freight & Logistics — 0.27%†
Expeditors International of Washington, Inc.		146,000		5,913,000
Airlines — 0.03%†
China Eastern Airlines Corporation Limited ADR*(1)		29,000		631,620
China Southern Airlines Company Limited ADR*		4,000		81,800
				713,420
Amusement And Recreation Services — 0.00%†
Ladbrokes Plc ADR		8,470		69,333
Asian Exchanges — 5.33%†
Hong Kong Exchanges & Clearing Limited		6,040,000		66,392,400
Osaka Securities Exchange Co., Ltd.		4,396		22,016,016
Singapore Exchange Limited		7,200,000		26,757,946
				115,166,362
Asset Management — 4.29%†
Ameriprise Financial, Inc.		80		4,360
Brookfield Asset Management Inc — Class A		1,276,000		61,477,680
Eaton Vance Corp.		58,000		1,914,580
Legg Mason, Inc.		258,000		24,522,900
Power Corporation of Canada		160,000		4,841,916
				92,761,436
Auto Components — 0.78%†
Toyota Industries Corporation		368,000		16,914,919
Automobiles — 0.00%†
Great Wall Automobile Holdings Company, Limited — Class H		20,000		19,310

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Beverages — 0.14%†
Anheuser-Busch Companies, Inc.		4,400	$	216,480
Brown-Forman Corporation — Class B		7,000		463,680
Constellation Brands, Inc. — Class A*		1,800		52,236
Diageo plc ADR		16,200		1,284,822
Pernod Ricard SA		1,200		275,626
Remy Cointreau SA		2,400		155,237
Tsingtao Brewery Company Limited — Class H		288,000		485,782
				2,933,863
Brokerage & Investment Banking — 2.11%†
The Bear Stearns Companies Inc.		187,600		30,537,528
Greenhill & Co., Inc.(1)		39,800		2,937,240
ICAP plc		212,000		1,986,216
Lazard Ltd — Class A		213,100		10,088,154
				45,549,138
Business Services — 0.01%†
Fidelity National Information Services, Inc.		4,406		176,636
Capital Markets — 3.88%†
BlackRock, Inc.		96,600		14,673,540
Collins Stewart plc*		40,000		198,931
Evercore Partners, Inc.*(1)		94,000		3,463,900
The Goldman Sachs Group, Inc.		203,700		40,607,595
Jefferies Group, Inc.		360,000		9,655,200
Lehman Brothers Holdings, Inc.		115,400		9,015,048
Man Group plc		44,000		450,355
Nuveen Investments — Class A		48,000		2,490,240
SEI Investments Co.		8,000		476,480
State Street Corporation		30,000		2,023,200
Tullett Prebon plc*		72,000		916,335
				83,970,824
Chemicals — 0.00%†
Novozymes A/ S — Class B		200		17,207
Potash Corporation of Saskatchewan Inc.		400		57,392
				74,599

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Commercial Banks — 3.70%†
Bank Of China Ltd-Class H*		216,000	$	118,576
The Bank of New York Company, Inc.*		558,000		21,968,460
Cathay General Bancorp		96,000		3,312,960
Center Financial Corporation		172,000		4,122,840
China Construction Bank-Class H		300,000		190,916
East West Bancorp, Inc.		94,000		3,329,480
Hanmi Financial Corporation		152,000		3,424,560
HDFC Bank Ltd. ADR		8,000		603,840
ICICI Bank Limited ADR		14,000		584,360
Industrial & Commercial Bank of China — Class H*		300,000		186,288
M&T Bank Corporation		230,000		28,096,800
Macquarie Bank Limited		10,000		623,031
Nara Bancorp, Inc.		158,000		3,305,360
State Bank of India GDR		58,000		4,315,200
UCBH Holdings, Inc.		164,000		2,879,840
Wilshire Bancorp, Inc.		154,000		2,921,380
				79,983,891
Commercial Services & Supplies — 0.29%†
Dun & Bradstreet Corporation*		75,000		6,209,250
Equifax Inc.		100		4,060
				6,213,310
Consumer Finance — 0.21%†
The Student Loan Corporation		21,900		4,539,870
Derivative Exchanges — 5.48%†
CBOT Holdings, Inc. — Class A*(1)		288,200		43,653,654
Chicago Mercantile Exchange Holdings Inc.		80,000		40,780,000
International Securities Exchange, Inc.		684,000		32,004,360
Nymex Holdings, Inc.*(1)		15,800		1,959,358
				118,397,372
Diversified Consumer Services — 0.38%†
H&R Block, Inc.		106,000		2,442,240
Sotheby’s Holdings, Inc. — Class A		184,000		5,707,680
				8,149,920

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Diversified Financial Services — 0.35%†
Pargesa Holding AG — Class B*		66,000	$	7,518,096
Diversified Telecommunication Services — 2.16%†
Leucadia National Corporation		1,654,000		46,642,800
Electric Utilities — 4.61%†
Allegheny Energy, Inc.*		802,000		36,819,820
Datang International Power Generation Company Limited — Class H		360,000		374,889
Huadian Power International Corporation Limited — Class H		720,000		283,250
Huaneng Power International, Inc. ADR(1)		472,000		16,958,960
Korea Electric Power Corporation ADR(1)		816,000		18,531,360
Sierra Pacific Resources*		1,582,000		26,625,060
				99,593,339
European Exchanges — 2.93%†
Bolsas Y Mercados Espanoles*		12,000		496,284
Hellenic Exchanges Holding S.A.		36,000		662,452
Deutsche Boerse AG		76,000		14,018,190
Euronext NV		192,000		22,683,651
London Stock Exchange Group plc*		946,291		24,271,948
OMX AB		64,000		1,177,923
				63,310,448
Food Products — 0.14%†
Archer-Daniels-Midland Company		24,000		767,040
Bunge Limited		30,400		2,204,304
McCormick & Company, Incorporated		1,000		38,560
TreeHouse Foods, Inc.*		3,600		112,320
				3,122,224

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Gaming — 2.84%†
Harrah’s Entertainment, Inc.		90,000	$	7,444,800
Las Vegas Sands Corp.*		181,900		16,276,412
Melco International Development Limited*		280,000		663,795
Melco PBL Entertainment (Macau) Limited ADR*		45		957
MGM MIRAGE*		258,000		14,796,300
Wynn Resorts, Limited*(1)		235,600		22,111,060
				61,293,324
Hotels Restaurants & Leisure — 0.64%†
Carnival Corporation		59,200		2,903,760
Royal Caribbean Cruises Ltd.		59,200		2,449,696
Triarc Companies, Inc. — Class A		392,000		8,522,080
				13,875,536
Household Durables — 0.45%†
Fortune Brands, Inc.		4,000		341,560
Jarden Corporation*		269,000		9,358,510
				9,700,070
Household Products — 0.05%†
Church & Dwight Co., Inc.		24,000		1,023,600
Independent Power Producers & Energy Traders — 0.91%†
Dynegy Inc. — Class A*		694,165		5,025,755
Mirant Corporation		150,000		4,735,500
TXU Corporation		180,800		9,801,168
				19,562,423

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Insurance — 5.73%†
Berkshire Hathaway Inc. — Class B*		9,200	$	33,727,200
China Life Insurance Co., Limited — ADR*(1)		410,656		20,742,255
Fidelity National Financial, Inc.		10,026		239,421
Loews Corporation		120,000		4,976,400
Markel Corporation*		40,000		19,204,000
Millea Holdings, Inc. ADR		36,000		1,291,320
Montpelier Re Holdings Ltd.		160,000		2,977,600
Ping An Insurance Group Company of China Limited — Class H		152,000		841,264
The Progressive Corporation		772,200		18,702,684
Wesco Financial Corporation		1,700		782,000
White Mountains Insurance Group Ltd.		35,000		20,280,050
				123,764,194
IT Services — 0.62%†
Automatic Data Processing, Inc.		71,200		3,506,600
First Data Corporation		6,000		153,120
Iron Mountain Incorporated*		20,000		826,800
Mastercard, Inc. — Class A		29,200		2,875,908
Western Union Company		268,000		6,008,560
				13,370,988
Media — 3.71%†
DreamWorks Animation SKG, Inc.*		320,000		9,436,800
The E.W. Scripps Company — Class A		64,000		3,196,160
EMI Group plc		777,083		4,032,013
Getty Images, Inc.*		48,200		2,063,924
Groupe Bruxelles Lambert S.A.		200,000		24,038,017
Idearc, Inc.*		6,000		171,900
The McGraw-Hill Companies, Inc.		250,000		17,005,000
The Walt Disney Company		14,400		493,488
Warner Music Group Corp.		216,000		4,957,200
The Washington Post Company — Class B		19,800		14,762,880
				80,157,382

See Notes to the Financial Statements.

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The Paradigm Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Metals & Mining — 2.28%†
Anglo American PLC ADR		1,324,000	$	32,318,840
Cameco Corporation		113,000		4,570,850
China Coal Energy Company — Class H		198,000		128,550
Commercial Metals Company		246,000		6,346,800
Phelps Dodge Corporation		4,000		478,880
Rio Tinto plc ADR		25,200		5,354,748
Yanzhou Coal Mining Company Limited — ADR		6,000		242,245
				49,440,913
Multiline Retail — 2.20%†
Sears Holdings Corporation*		283,800		47,658,534
Multi-Utilities — 2.15%†
CenterPoint Energy, Inc.		940,000		15,585,200
NRG Energy, Inc.*		56,000		3,136,560
Reliant Energy Inc.*		1,956,000		27,794,760
				46,516,520
Oil & Gas — 0.23%†
China Petroleum & Chemical Corp. ADR(1)		50,000		4,632,000
Penn West Energy Trust(1)		12,400		378,944
				5,010,944

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Oil, Gas & Consumable Fuels — 8.13%†
Canadian Natural Resources Ltd.		44,000	$	2,342,120
Canadian Oil Sands Trust		942,000		26,338,320
CNOOC Limited ADR		164,000		15,519,320
El Paso Corporation		1,460,000		22,308,800
EnCana Corporation		145,000		6,662,750
Imperial Oil Ltd.		227,400		8,375,142
National Energy Group, Inc.*		9,200		57,500
Nexen Inc.		124,000		6,820,000
Norsk Hydro ASA ADR		120,000		3,680,400
OAO Gazprom ADR*		546,000		25,116,000
Petro-Canada		145,000		5,950,800
PetroChina Company Limited ADR(1)		84,000		11,825,520
Shell Canada Limited		148,000		5,522,000
Statoil ASA ADR		10,000		263,200
Suncor Energy, Inc.		386,900		30,530,279
Western Oil Sands Inc. — Class A*		160,000		4,487,930
				175,800,081
Other Exchanges — 1.98%†
Australian Stock Exchange Limited		192,000		5,781,809
IntercontinentalExchange Inc.*		253,000		27,298,700
JSE Limited		400,000		2,994,332
New Zealand Exchange Limited		20,000		94,128
TSX Group Inc.		166,000		6,634,875
				42,803,844
Paper & Forest Products — 0.00%†
Pope Resources, L.P.		1,800		61,776
Pharmaceuticals — 0.04%†
Novo-Nordisk A/ S ADR		9,600		802,848
Publishing — 1.08%†
John Wiley & Sons, Inc. — Class B		2,000		77,220
Moody’s Corporation		250,000		17,265,000
R.H. Donnelley Corporation*		94,000		5,896,620
				23,238,840

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Real Estate — 4.61%†
Alexander’s, Inc.*		20,000	$	8,393,000
American Real Estate Partners, L.P.		420,000		36,006,600
Forest City Enterprises, Inc. — Class A		830,600		48,507,040
New World China Land Limited		198,000		120,150
Shun Tak Holdings Limited		356,000		544,643
SL Green Realty Corp.		8,000		1,062,240
The St. Joe Company(1)		4,000		214,280
Texas Pacific Land Trust		22,200		4,817,400
				99,665,353
Real Estate Investment Trusts — 1.05%†
Vornado Realty Trust		186,200		22,623,300
Road & Rail — 0.02%†
Guangshen Railway Company Limited — ADR		12,000		406,800
Security Brokers, Dealers, And Flotation Companies — 0.65%†
Cohen & Steers, Inc.		289,000		11,609,130
GFI Group, Inc.*		40,000		2,490,400
				14,099,530
Specialists — 0.39%†
LaBranche & Co Inc.*(1)		860,000		8,453,800
State Commercial Banks — 0.03%†
Preferred Bank Los Angeles		10,000		600,900
Tobacco — 0.08%†
Altria Group, Inc.		20,000		1,716,400

See Notes to the Financial Statements.

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The Paradigm Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Transportation Infrastructure — 0.59%†
Anhui Expressway Co., Ltd. — Class H		2,036,000	$	1,643,814
Beijing Capital International Airport Company Limited — Class H		6,720,000		5,261,407
Hainan Meilan International Airport Company Limited — Class H		552,000		320,060
Hopewell Holdings Limited*		18,000		63,176
Jiangsu Expressway Company Ltd. — Class H		1,672,000		1,051,140
Macquarie Airports		97,610		277,373
Shenzhen Expressway Company Limited — Class H		3,328,000		1,998,092
Sichuan Expressway Co. Limited — Class H		1,420,000		272,013
Zhejiang Expressway Co., Ltd. — Class H		2,476,000		1,897,196
				12,784,271
U.S. Equity Exchanges — 5.48%†
Nasdaq Stock Market Inc.*		1,460,000		44,953,400
NYSE Group Inc.*(1)		756,000		73,483,200
				118,436,600
Wireless Telecommunication Services — 0.07%†
China Mobile (Hong Kong) Limited ADR		4,000		172,880
KDDI Corporation		200		1,356,245
				1,529,125
TOTAL COMMON STOCKS (cost $1,456,623,090)			$	1,814,942,082

	Principal
CONVERTIBLE BONDS — 1.26%†	Amount
Independent Power Producers & Energy Traders — 1.26%†
Calpine Corporation, CLB 4.750%, due 11/15/2023 Acquired 11/30/2005 — 12/15/2006 at $21,543,989 (Default Effective 12/20/2005)*(1) (cost $21,543,989)	$	35,000,000	27,168,751

See Notes to the Financial Statements.

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Portfolio of Investments — December 31, 2006 — (Continued)

CONVERTIBLE BONDS — 0.15%†		Amount		Value
Diversified Financial Services — 0.03%†
FINOVA Group Inc. 7.500%, due 11/15/2009, Acquired 10/19/2006 — 11/21/2006 at $769,239 (Default Effective 4/29/2005)*		$	2,406,000	$	697,740
Independent Power Producers & Energy Traders — 0.02%†
Calpine Corp. 8.750%, due 07/15/2007, CLB, Acquired 4/18/2006 and 5/03/2006 at $118,563 (Default Effective 12/20/2005)*			200,000		190,000
	7.875%, due 04/01/2008, Acquired 4/18/2006 — 5/10/2006 at $118,538 (Default Effective 12/20/2005)*		200,000		190,000
					380,000
Multi-Utilities & Unregulated Power — 0.05%†
Calpine Corp. 7.625%, due 04/15/2006, Acquired 4/18/2006 — 4/20/2006 at $61,031 (Default Effective 12/20/2005)*(1)			100,000		95,000
	10.500%, due 05/15/2006, Acquired 4/7/2006 — 5/10/2006 at $181,375 (Default Effective 12/20/2005)*(1)		300,000		286,500
	8.500%, due 02/15/2011, Acquired 7/5/2006 at $471,250 (Default Effective 12/20/2005)*(1)		1,000,000		800,000
					1,181,500
Unit Investment Trusts, Face-amount Certificate Offices, And — 0.05%†
Calpine Canada Energy Finance Ulc 8.500%, due 05/01/2008, Acquired 4/20/2006 and 7/13/2006 at $780,125 (Default Effective 12/20/2005)*			1,200,000		1,062,000
TOTAL CORPORATE BONDS (cost $2,527,120)					3,321,240

See Notes to the Financial Statements.

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The Paradigm Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

CALL OPTIONS PURCHASED — 0.02%†		Contracts		Value
TXU Corporation Expiration: January, 2007, Exercise Price: $22.500
	(cost $143,073)		142	$	451,560

SHORT-TERM INVESTMENTS —	Principal
13.90%†	Amount
US Government Agency Issues — 13.84%†
Federal Home Loan Bank Discount Note, 0.000%, due 01/02/2007	$	299,195,000	299,156,603
Variable Rate Demand Notes** — 0.06%†
Wisconsin Corporate Central Credit Union, 4.990%		1,203,807	1,203,807
TOTAL SHORT-TERM INVESTMENTS (cost $300,360,410)			300,360,410

INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING — 10.42%†		Shares
Investment Companies — 10.42%†
Mount Vernon Securities Lending Trust — Prime Portfolio
	(cost $225,408,950)		225,408,950		225,408,950
TOTAL INVESTMENTS — 109.71%† (cost $2,006,606,632)				$	2,371,652,993

* — 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, 2006.

† — Calculated as a percentage of net assets.

GDR — Global Depository Receipts.

ADR — American Depository Receipts.

CLB — Callable Security.

(1) — This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $208,222,280 December 31, 2006.

See Notes to the Financial Statements.

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The Medical Portfolio

Portfolio of Investments — December 31, 2006

COMMON STOCKS — 94.47%†	Shares		Value
Biotechnology — 32.30%†
AEterna Zentaris Inc.*(1)		23,500	$	95,175
Albany Molecular Research, Inc.*		11,000		116,160
Arena Pharmaceuticals, Inc.*		14,000		180,740
AVAX Technologies, Inc.*		50,000		6,500
Avigen, Inc.*		21,000		110,880
Biogen Idec, Inc.*		10,250		504,197
Biomira, Inc.*(1)		37,000		42,550
Cell Genesys, Inc.*(1)		28,725		97,378
Coley Pharmaceuticals Group*(1)		17,000		164,730
Cubist Pharmaceuticals, Inc.*		2,000		36,220
CuraGen Corporation*		16,000		73,600
deCODE genetics, Inc.*		11,000		49,830
Dendreon Corporation*		24,000		100,080
Favrille Inc.*(1)		26,000		65,000
Human Genome Sciences, Inc.*		17,000		211,480
ImmunoGen, Inc.*		9,000		45,630
Invitrogen Corp.*		12,000		679,080
Isotechnika, Inc.*		30,000		42,705
Medarex, Inc.*		20,000		295,800
MedImmune, Inc.*		28,500		922,545
Millennium Pharmaceuticals, Inc.*		37,296		406,526
Progenics Pharmaceuticals, Inc.*		2,200		56,628
Savient Pharmaceuticals Inc.*		34,000		381,140
Serono SA ADR		19,000		423,320
Sirna Therapeutics, Inc.*		3,491		45,418
Targeted Genetics Corp.*		1,000		5,370
Vical Incorporated*		13,500		86,805
				5,245,487
Chemicals — 11.11%†
Akzo Nobel N.V. ADR		13,000		791,310
Atrium Biotechnologies, Inc.*		4,886		63,263
Lonza Group AG		11,000		950,595
				1,805,168

See Notes to the Financial Statements.

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The Medical Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Health Care Equipment & Supplies — 0.04%†
Theragenics Corporation*		2,000	$	6,200
Health Care Providers & Services — 0.38%†
IMPATH Bankruptcy Liquidating Trust — Class A*		26,000		62,400
Industrial Conglomerates — 2.25%†
Tyco International Ltd.		12,000		364,800
Pharmaceuticals — 48.39%†
Abbott Laboratories		17,000		828,070
Altana AG ADR		12,000		744,000
Antigenics, Inc.*		892		1,632
Bristol-Meyers Squibb Company		15,000		394,800
China Pharmaceutical Group Limited*		1,440,000		203,643
Eli Lilly and Company		12,000		625,200
Epicept Corporation*		2,039		2,916
Genzyme Corporation*		9,538		587,350
GlaxoSmithKline PLC ADR		20,673		1,090,708
Johnson & Johnson		7,000		462,140
Mayne Pharma Ltd		50,000		160,632
Novartis AG ADR		21,000		1,206,240
Pfizer, Inc.		11,000		284,900
Wyeth		24,900		1,267,908
				7,860,139
TOTAL COMMON STOCKS (cost $15,545,206)				15,344,194

RIGHTS — 0.00%†
Biotechnology — 0.00%†
OSI Pharmaceuticals, Inc.* Expiration Date: 06/28/2008, Strike Price $1.00#
	(cost $0)	13,932	878

See Notes to the Financial Statements.

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The Medical Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Principal
SHORT-TERM INVESTMENTS — 5.28%†	Amount		Value
US Government Agency Issues — 4.70%†
Federal Home Loan Bank Discount Note, 0.000%, due 01/02/2007	$	764,000	763,902
Variable Rate Demand Notes** — 0.58%†
U.S. Bank, N.A., 5.070%		55,483	55,483
Wisconsin Corporate Central Credit Union, 4.990%		38,117	38,117
			93,600
TOTAL SHORT-TERM INVESTMENTS (cost $857,502)			857,502

INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING — 3.12%†	Shares
Investment Companies — 3.12%†
Mount Vernon Securities Lending Trust — Prime Portfolio (Cost $506,700)	506,700		506,700
TOTAL INVESTMENTS — 102.87%† (cost $16,909,408)		$	16,709,274

* — 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, 2006.

† — Calculated as a percentage of net assets.

# — Contingent value right (contingent upon profitability of company).

ADR — American Depository Receipt.

(1) — This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $419,396 at December 31, 2006.

See Notes to the Financial Statements.

98

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006

COMMON STOCKS — 88.86%†	Shares		Value
Aerospace & Defense — 2.07%†
Armor Holdings, Inc.*		2,400	$	131,640
Bombardier Inc.*		360,000		1,219,397
CACI International, Inc. — Class A*		156,000		8,814,000
				10,165,037
Air Freight & Logistics — 0.26%†
EGL, Inc.*		20,000		595,600
Hub Group, Inc. — Class A*		25,000		688,750
				1,284,350
Airlines — 0.69%†
China Eastern Airlines Corporation Limited — ADR*		80,000		1,742,400
China Southern Airlines Company Limited — ADR*		80,000		1,636,000
				3,378,400
Asian Exchanges — 4.39%†
Hong Kong Exchanges & Clearing Limited		720,000		7,914,326
Osaka Securities Exchange Co., Ltd.		1,240		6,210,159
Singapore Exchange Limited		2,000,000		7,432,763
				21,557,248
Beverages — 0.41%†
Tsingtao Brewery Company Limited — Class H		1,200,000		2,024,093
Brokerage & Investment Banking — 0.44%†
Greenhill & Co., Inc.		29,200		2,154,960

See Notes to the Financial Statements.

99

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Capital Markets — 9.54%†
Amvescap Plc — ADR		36,000	$	887,400
Bam Investments Corp.*		16,400		4,148,694
Calamos Asset Management, Inc. — Class A		34,000		912,220
Cowen Group, Inc.*		16,000		338,400
Evercore Partners, Inc.*(1)		83,800		3,088,030
Guardian Capital Group Ltd.		2,000		21,352
International Assets Holding Corporation*(1)		118,200		3,393,522
Jefferies Group, Inc.		460,000		12,337,200
KBW, Inc.*		10,000		293,900
Nuveen Investments — Class A		242,000		12,554,960
Penson Worldwide, Inc.*		60,000		1,644,600
SWS Group, Inc.		46,000		1,642,200
Thomas Weisel Partners Group, Inc.*		124,000		2,616,400
Van der Moolen Holding N.V. ADR(1)		504,427		2,960,987
				46,839,865
Commercial Banks — 6.48%†
Banque du Liban et d’Outre-Mer S.A.L. (BLOM) — Class B GDR*		30,000		1,729,500
Cathay General Bancorp(1)		114,000		3,934,140
Center Financial Corporation		170,000		4,074,900
East West Bancorp, Inc.		104,000		3,683,680
Farmers & Merchants Bank of Long Beach		31		209,250
First Bank of Delaware*		428,403		1,328,049
Hanmi Financial Corporation		202,062		4,552,457
Nara Bancorp, Inc.		214,400		4,485,248
UCBH Holdings, Inc.		226,000		3,968,560
Wilshire Bancorp, Inc.		202,000		3,831,940
				31,797,724

See Notes to the Financial Statements.

100

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Commercial Services & Supplies — 0.87%†
Comdisco Holding Company, Inc.		8,800	$	103,840
First Advantage Corporation — Class A*		12,000		275,520
Loring Ward International Ltd.*		1,000		515
PICO Holdings, Inc.*		66,000		2,294,820
Ritchie Bros. Auctioneers Incorporated		30,000		1,606,200
				4,280,895
Construction & Engineering — 1.20%†
Quanta Services, Inc.*		300,000		5,901,000
Consumer Finance — 0.05%†
The Student Loan Corporation		1,200		248,760
Derivative Exchanges — 5.66%†
International Securities Exchange, Inc.		594,000		27,793,260
Diversified Consumer Services — 1.39%†
Sotheby’s Holdings, Inc. — Class A		220,000		6,824,400
Diversified Telecommunication Services — 0.18%†
Lynch Interactive Corporation*		18		56,250
NeuStar, Inc. — Class A*		1,000		32,440
XO Holdings Inc.*(1)		180,000		774,000
				862,690
Electric Utilities — 4.53%†
Allegheny Energy, Inc.*		200,000		9,182,000
China Resources Power Holdings Company Limited		100,000		150,933
Datang International Power Generation Company Limited — Class H		324,000		337,400
Huadian Power International Corporation Limited — Class H		490,000		192,767
Sierra Pacific Resources*		736,000		12,386,880
				22,249,980
Electrical Apparatus And Equipment, Wiring Supplies, And — 0.04%†
Smith & Wesson Holding Corp.*		20,000		206,800

See Notes to the Financial Statements.

101

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Energy — 0.48%†
Siem Industries Inc.*		44,000	$	2,354,000
European Exchanges — 0.57%†
Euronext NV		20,000		2,362,880
OMX AB		24,000		441,721
				2,804,601
Gaming — 0.09%†
Boyd Gaming Corporation		10,000		453,100
Gas Utilities — 0.91%†
Southern Union Company(1)		160,263		4,479,337
Hotels Restaurants & Leisure — 2.47%†
Triarc Companies, Inc. — Class A		558,000		12,130,920
Household Durables — 1.46%†
Jarden Corporation*		206,000		7,166,740
Independent Power Producers & Energy Traders — 0.82%†
Dynegy Inc. — Class A*		554,000		4,010,960
Industrial Conglomerates — 0.09%†
Alleghany Corporation*		1,200		436,320
Insurance — 0.68%†
Covanta Holding Corporation*		6,000		132,240
Montpelier Re Holdings Ltd.		60,000		1,116,600
National Western Life Insurance Company — Class A		1,200		276,168
RLI Corp.		8,000		451,360
Safety Insurance Group, Inc.		15,800		801,218
Wesco Financial Corporation		1,200		552,000
				3,329,586
IT Services — 0.41%†
ManTech International Corporation — Class A*		54,000		1,988,820
Machinery — 0.02%†
Oshkosh Truck Corporation		2,000		96,840

See Notes to the Financial Statements.

102

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Media — 3.80%†
Courier Corporation		48,000	$	1,870,560
DreamWorks Animation SKG, Inc.*		190,000		5,603,100
Gemstar-TV Guide International, Inc.*		36,000		144,360
Idearc, Inc.*		36,000		1,031,400
Interactive Data Corporation		12,000		288,480
Live Nation Inc.*		100,000		2,240,000
PrimaCom AG ADR*		54,000		258,125
Warner Music Group Corp.		314,000		7,206,300
				18,642,325
Metals & Mining — 2.20%†
Commercial Metals Company		194,000		5,005,200
Inmet Mining Corporation		104,000		5,565,870
Yanzhou Coal Mining Company Limited — ADR		5,200		209,946
				10,781,016
Multi-Utilities — 5.30%†
Aquila, Inc.*		948,000		4,455,600
CMS Energy Corporation*		172,000		2,872,400
NRG Energy, Inc.*		12,000		672,120
Reliant Energy Inc.*		1,270,000		18,046,700
				26,046,820
Oil And Gas Extraction — 0.01%†
Keweenaw Land Assn Ltd		300		53,700
Oil, Gas & Consumable Fuels — 0.47%†
National Energy Group, Inc.*		40,000		250,000
Shell Canada Limited		3,000		111,932
UTS Energy Corporation*		500,000		1,933,714
				2,295,646
Other Exchanges — 5.37%†
IntercontinentalExchange Inc.*		214,000		23,090,600
JSE Limited		360,000		2,694,899
New Zealand Exchange Limited		120,025		564,881
				26,350,380

See Notes to the Financial Statements.

103

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The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Paper & Forest Products — 0.00%†
Pope Resources, L.P.		600	$	20,592
Publishing — 2.67%†
John Wiley & Sons, Inc. — Class A		24,000		923,280
R.H. Donnelley Corporation*		184,246		11,557,752
Value Line, Inc.		14,200		645,390
				13,126,422
Real Estate — 10.38%†
Alexander’s, Inc.*		36,000		15,107,400
American Real Estate Partners, L.P.		340,000		29,148,200
Biloxi Marsh Lands Corporation		100		4,130
Forest City Enterprises, Inc. — Class A		20,000		1,168,000
HomeFed Corporation		400		26,400
New World China Land Limited		180,000		109,227
Shun Tak Holdings Limited		10,000		15,299
SOLIDERE GDR		800		12,960
Tejon Ranch Co.*		400		22,336
Texas Pacific Land Trust		24,600		5,338,200
United Capital Corporation*		1,200		35,436
				50,987,588
Road & Rail — 0.53%†
Guangshen Railway Company Limited — ADR		28,000		949,200
Laidlaw International, Inc.		54,000		1,643,220
				2,592,420
Security Brokers, Dealers, And Flotation Companies — 2.76%†
Cohen & Steers, Inc.		210,000		8,435,700
GFI Group, Inc.*		82,000		5,105,320
				13,541,020
Specialists — 1.44%†
LaBranche & Co Inc.*(1)		720,000		7,077,600
State Commercial Banks — 0.73%†
Preferred Bank Los Angeles		60,000		3,605,400

See Notes to the Financial Statements.

104

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

	Shares		Value
Tobacco — 0.06%†
Vector Group Ltd.(1)		16,972	$	301,253
Transportation Infrastructure — 1.14%†
Beijing Capital International Airport Company Limited — Class H		5,506,100		4,310,987
Hainan Meilan International Airport Company Limited — Class H*		636,000		368,764
Hopewell Holdings Limited*		18,000		63,176
Macquarie Airports		201,610		572,905
Sichuan Expressway Co. Limited — Class H		1,400,000		268,182
				5,584,014
U.S. Equity Exchanges — 5.80%†
Nasdaq Stock Market Inc.*		610,000		18,781,900
NYSE Group Inc.*(1)		100,000		9,720,000
				28,501,900
TOTAL COMMON STOCKS (cost $350,442,127)				436,328,782

		Principal
CONVERTIBLE BONDS — 1.33%†		Amount
Independent Power Producers & Energy Traders — 1.33%†
Calpine Corporation, CLB, 4.750%, due 11/15/2023, Acquired on 11/30/2005-11/27/2006 at $3,639,755 (Default Effective 12/20/2005)*(1)
	(cost $3,639,755)	$	8,400,000	6,520,500

CORPORATE BONDS — 0.05%†
Diversified Financial Services — 0.05%†
FINOVA Group Inc. 7.500%, 11/15/2009
	(cost $293,240)	902,000	261,580

See Notes to the Financial Statements.

105

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

RIGHTS — 0.45%†	Shares		Value
Commercial Services & Supplies — 0.45%†
Comdisco Holding Company, Inc., Expiration Date: 12/31/2050, Strike Price $1.00# (cost $2,806,450)		8,920,400	$	2,230,100

CALL OPTIONS PURCHASED —
0.01%†	Contracts
LaBranche & Co. Inc. Expiration: May, 2007, Exercise Price: $5.000 (cost $33,180)		60	30,000

	Principal
SHORT-TERM INVESTMENTS — 9.77%†	Amount
US Government Agency Issues — 9.72%†
Federal Home Loan Bank Discount Note 0.000%, due 01/02/2007	$	47,766,000	$	47,741,480
Variable Rate Demand Notes** — 0.05%† Wisconsin Corporate Central Credit Union, 4.990%		241,466		241,466
TOTAL SHORT-TERM INVESTMENTS (cost $47,982,946)				47,982,946

See Notes to the Financial Statements.

106

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Small Cap Opportunities Portfolio

Portfolio of Investments December 31, 2006 — (Continued)

INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING — 7.77%†	Shares		Value
Investment Companies — 7.77%†
Mount Vernon Securities Lending Trust — Prime Portfolio (cost $38,177,400)		38,177,400		38,177,400
TOTAL INVESTMENTS — 108.24%† (cost $443,375,098)			$	531,531,308

* — 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, 2006.

† — 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) — This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $36,223,651 at December 31, 2006.

See Notes to the Financial Statements.

107

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Kinetics Government Money Market Portfolio

Portfolio of Investments — December 31, 2006

	Principal
SHORT-TERM INVESTMENTS	Amount		Value
US Government Agency Issues — 100.03%†
Federal Home Loan Bank Discount Note 0.000%, due 01/02/2007	$	1,439,000	$	1,438,815
TOTAL INVESTMENTS — 100.03%† (cost $1,438,815)			$	1,438,815

† — Calculated as a percentage of net assets.

See Notes to the Financial Statements.

108

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Market Opportunities Portfolio

Portfolio of Investments — December 31, 2006

COMMON STOCKS — 94.88%†	Shares		Value
Asian Exchanges — 14.45%†
Hong Kong Exchanges & Clearing Limited		94,000	$	1,033,259
Osaka Securities Exchange Co., Ltd.		114		570,934
Singapore Exchange Limited		252,000		936,528
				2,540,721
Asset Management — 3.36%†
Brookfield Asset Management Inc — Class A		3,600		173,448
Eaton Vance Corp.		1,800		59,418
Legg Mason, Inc.		2,500		237,625
Power Corporation of Canada		4,000		121,048
				591,539
Brokerage & Investment Banking — 4.48%†
The Bear Stearns Companies Inc.		2,000		325,560
Greenhill & Co., Inc.		400		29,520
ICAP plc		28,000		262,330
Lazard Ltd — Class A		3,600		170,424
				787,834

See Notes to the Financial Statements.

109

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Market Opportunities Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Capital Markets — 18.01%†
Affiliated Managers Group, Inc.*		600	$	63,078
Bam Investments Corp.*		2,300		581,829
BlackRock, Inc.		2,100		318,990
Collins Stewart plc*		6,000		29,840
Evercore Partners, Inc.*		1,000		36,850
Federated Investors, Inc.		1,800		60,804
Franklin Resources, Inc.		600		66,102
The Goldman Sachs Group, Inc.		2,200		438,570
International Assets Holding Corporation*(1)		2,200		63,162
Janus Capital Group, Inc.		200		4,318
Jefferies Group, Inc.		7,200		193,104
KBW, Inc.*		400		11,756
Lehman Brothers Holdings, Inc.		2,800		218,736
Man Group Plc		8,000		81,883
Nuveen Investments — Class A		4,800		249,024
Penson Worldwide, Inc.*		10,200		279,582
State Street Corporation		1,000		67,440
SWS Group, Inc.		5,600		199,920
T. Rowe Price Group, Inc.		400		17,508
Thomas Weisel Partners Group, Inc.*		1,800		37,980
Tullett Prebon plc*		6,000		76,361
Van der Moolen Holding N.V. ADR		12,000		70,440
				3,167,277
Commercial Banks — 6.84%†
The Bank of New York Company, Inc.		7,600		299,212
Cathay General Bancorp		3,400		117,334
Center Financial Corporation		5,600		134,232
East West Bancorp, Inc.		3,200		113,344
Hanmi Financial Corporation		6,400		144,192
Nara Bancorp, Inc.		6,600		138,072
UCBH Holdings, Inc.		7,200		126,432
Wilshire Bancorp, Inc.		6,800		128,996
				1,201,814

See Notes to the Financial Statements.

110

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Market Opportunities Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Derivative Exchanges — 10.18%†
CBOT Holdings, Inc. — Class A*		3,600	$	545,292
Chicago Mercantile Exchange Holdings Inc.		740		377,215
International Securities Exchange, Inc.		16,400		767,356
Nymex Holdings, Inc.*(1)		800		99,208
				1,789,071
Diversified Consumer Services — 0.32%†
Sotheby’s Holdings, Inc. — Class A		1,800		55,836
Diversified Financial Services — 0.46%†
Alliancebernstein Holding Lp		1,000		80,400
European Exchanges — 7.57%†
Bolsas Y Mercados Espanoles*		4,200		173,700
Hellenic Exchanges Holding S.A.		8,800		161,933
Deutsche Boerse AG		600		110,670
Euronext NV		2,400		283,546
London Stock Exchange Group plc*		14,843		380,716
OMX AB		12,000		220,860
				1,331,425
Hotels Restaurants & Leisure — 1.48%†
Triarc Companies, Inc. — Class A		12,000		260,880
IT Services — 1.01%†
Mastercard, Inc. — Class A		1,800		177,282
Media — 1.07%†
Interactive Data Corporation		1,000		24,040
The McGraw-Hill Companies, Inc.		2,400		163,248
				187,288
Other Exchanges — 12.96%†
Australian Stock Exchange Limited		14,000		421,590
IntercontinentalExchange Inc.*		7,600		820,040
JSE Limited		92,000		688,696
New Zealand Exchange Limited		28,000		131,779
TSX Group Inc.		5,400		215,833
				2,277,938

See Notes to the Financial Statements.

111

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Market Opportunities Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Shares		Value
Publishing — 0.99%†
Moody’s Corporation		2,400	$	165,744
Value Line, Inc.		200		9,090
				174,834
Real Estate — 0.29%†
American Real Estate Partners, L.P.		600		51,438
Security Brokers, Dealers, And Flotation Companies — 3.16%†
Cohen & Steers, Inc.		6,400		257,088
GFI Group, Inc.*		4,800		298,848
				555,936
Specialists — 0.83%†
LaBranche & Co Inc.*(1)		14,800		145,484
State Commercial Banks — 0.62%†
Preferred Bank Los Angeles		1,800		108,162
U.S. Equity Exchanges — 6.80%†
Nasdaq Stock Market Inc.*		18,000		554,220
NYSE Group Inc.*(1)		6,600		641,520
				1,195,740
TOTAL COMMON STOCKS (cost $14,952,367)				16,680,899

CALL OPTIONS PURCHASED — 0.11%†		Contracts
LaBranche & Co. Inc. Expiration: May, 2007, Exercise Price: $5.000
	(cost $22,120)		40	20,000

See Notes to the Financial Statements.

112

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Market Opportunities Portfolio

Portfolio of Investments — December 31, 2006 — (Continued)

	Principal
SHORT-TERM INVESTMENTS — 6.80%†	Amount		Value
US Government Agency Issues — 5.49%†
Federal Home Loan Bank Discount Note, 0.000%, due 01/02/2007	$	966,000	$	965,876
Variable Rate Demand Notes** — 1.31%†
U.S. Bank, N.A., 5.070%		51,454		51,454
Wisconsin Corporate Central Credit Union, 4.990%		177,949		177,949
				229,403
TOTAL SHORT-TERM INVESTMENTS (cost $1,195,279)				1,195,279

INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING — 5.11%†	Shares
Investment Companies — 5.11%†
Mount Vernon Securities Lending Trust — Prime Portfolio (Cost $898,800)		898,800		898,800
TOTAL INVESTMENTS — 106.90%† (cost $17,068,566)			$	18,794,978

* — 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, 2006. † Calculated as a percentage of net assets.

ADR — American Depository Receipts.

(1) — This security or a portion of this security was out on loan at December 31, 2006. Total loaned securities had a market value of $862,344 at December 31, 2006.

See Notes to the Financial Statements.

113

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Portfolio

Portfolio of Options Written — December 31, 2006

CALL OPTIONS WRITTEN	Contracts		Value
Internet HOLDRs Trust Expiration: January, 2007, Exercise Price: $70.00		5	$	37
TOTAL OPTIONS WRITTEN (premiums received $6,985)			$	37

114

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Internet Emerging Growth Portfolio

Portfolio of Options Written — December 31, 2006

CALL OPTIONS WRITTEN		Contracts		Value
Nasdaq-100 Index Tracking Stock Expiration: January, 2007, Exercise Price: $38.625			20	$	9,400
	Expiration: January, 2007, Exercise Price: $39.625		20		7,400
TOTAL OPTIONS WRITTEN (premiums received $22,479)				$	16,800

115

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

The Paradigm Portfolio

Portfolio of Options Written — December 31, 2006

PUT OPTIONS WRITTEN	Contracts		Value
Nymex Holdings, Inc. Expiration: January, 2008, Exercise Price: $125.00		20	$	50,800
TOTAL OPTIONS WRITTEN (premiums received $49,938)			$	50,800

116

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Statement of Assets & Liabilities

December 31, 2006

						The Internet
				The Internet		Emerging Growth
				Portfolio		Portfolio
ASSETS:
	Investments, at value(1)(3)			$	148,966,908	$	4,050,946
	Foreign currencies, at value(4)				33,677		—
	Cash				4,215,252		15,862
	Receivable for contributed capital				23,792		42,274
	Dividends and interest receivable				284,864		14,016
	Other assets				237,310		1,756
			Total assets		153,761,803		4,124,854
LIABILITIES:
	Written options, at value(2)				38		16,800
	Payable for securities purchased				0		6,206
	Payable to Adviser				148,631		4,144
	Payable to Trustees and Officers				2,686		49
	Payables for collateral received for securities loaned				16,115,000		100,000
	Payable for withdrawn capital				183,126		10,354
	Accrued expenses and other liabilities				9,268		197
			Total liabilities		16,458,749		137,750
		Net assets		$	137,303,054	$	3,987,104
(1) Cost of investments				$	103,378,457	$	3,057,098
(2) Premiums received				$	6,985	$	22,479
(3) Includes loaned securities with a market value of				$	15,572,927	$	97,200
(4) Cost of foreign currencies				$	31,274	$	—

See Notes to the Financial Statements.

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Statement of Assets & Liabilities — (Continued)

December 31, 2006

				The
				Paradigm		The Medical
				Portfolio		Portfolio
ASSETS:
	Investments, at value(1)(3)			$	2,371,652,993	$	16,709,274
	Foreign currencies, at value(4)				925,150		—
	Cash				6,224,818		25,295
	Receivable for options written				49,938		—
	Receivable for contributed capital				37,219,608		32,010
	Dividends and interest receivable				1,220,997		17,198
	Other assets				1,182,441		342
			Total assets		2,418,475,945		16,784,119
LIABILITIES:
	Written options, at value(2)				50,800		—
	Payable to Adviser				2,169,346		17,521
	Payable to Trustees and Officers				17,413		274
	Payable for securities purchased				27,737,811		—
	Payables for collateral received for securities loaned				225,408,950		506,700
	Payable for withdrawn capital				1,258,442		15,910
	Accrued expenses and other liabilities				72,017		964
			Total liabilities		256,714,779		541,369
		Net assets		$	2,161,761,166	$	16,242,750
(1) Cost of investments				$	2,006,606,632	$	16,909,408
(2) Premiums received				$	49,938	$	—
(3) Includes loaned securities with a market value of				$	208,222,280	$	419,396
(4) Cost of foreign currencies				$	882,620	$	—

See Notes to the Financial Statements.

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Statement of Assets & Liabilities — (Continued)

December 31, 2006

						The Kinetics
						Government
				The Small Cap		Money
				Opportunities		Market
				Portfolio		Portfolio
ASSETS:
	Investments, at value(1)(2)			$	531,531,308	$	1,438,815
	Cash				739,535		170
	Receivable for contributed capital				9,324,286		—
	Dividends and interest receivable				115,918		—
	Other assets				227,078		9
			Total assets		541,938,125		1,438,994
LIABILITIES:
	Payable to Adviser				496,127		502
	Payable to Trustees and Officers				3,903		9
	Payable for securities purchased				11,510,358		—
	Payables for collateral received for securities loaned				38,177,400		—
	Payable for withdrawn capital				673,689		70
	Accrued expenses and other liabilities				14,832		54
			Total liabilities		50,876,309		635
		Net assets		$	491,061,816	$	1,438,359
(1) Cost of investments				$	443,375,098	$	1,438,815
(2) Includes loaned securities with a market value of				$	36,223,651	$	—

See Notes to the Financial Statements.

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Statement of Assets & Liabilities — (Continued)

December 31, 2006

				The Market
				Opportunities
				Portfolio
ASSETS:
	Investments, at value(1)(2)			$	18,794,978
	Cash				16,945
	Foreign currencies, at value				7,317
	Receivable for contributed capital				307,203
	Dividends and interest receivable				5,745
	Other assets				1,223
			Total assets		19,133,411
LIABILITIES:
	Payable to Adviser				16,098
	Payable to Trustees and Officers				80
	Payable for securities purchased				636,286
	Payables for collateral received for securities loaned				898,800
	Payable for withdrawn capital				114
	Accrued expenses and other liabilities				964
			Total liabilities		1,552,342
		Net assets		$	17,581,069
(1) Cost of investments				$	17,068,556
(2) Includes loaned securities with a market value of				$	862,344
(3) Cost of foreign currencies				$	6,981

See Notes to the Financial Statements.

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Statement of Operations

For the Year Ended December 31, 2006

							The Internet
				The Internet			Emerging Growth
				Portfolio			Portfolio
INVESTMENT INCOME:
	Dividends†			$	1,349,110		$	80,405
	Interest				182,497			66,922
	Income from securities lending				710,582			6,843
			Total investment income		2,242,189			154,170
EXPENSES:
	Investment advisory fees				1,795,756			43,811
	Administration fees				95,696			2,309
	Professional fees				18,624			552
	Fund accounting fees				39,581			3,099
	Trustees and Officers’ fees and expenses				6,264			119
	Custodian fees and expenses				38,031			6,565
	Other expenses				7,607			176
			Total expenses		2,001,559			56,631
			Expense reduction*		(85,373	)		(5,364	)
			Net expenses		1,916,186			51,267
Net investment income					326,003			102,903
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
	Net realized gain (loss) on:
		Investments and foreign currency			(11,570,086	)		162,004
	Net change in unrealized appreciation (depreciation) of:
		Investments and foreign currency			34,151,184			305,569
		Written option contracts			2,963			1,800
Net gain on investments					22,584,061			469,373
Net increase in net assets resulting from operations				$	22,910,064		$	572,276
† Net of Foreign Taxes Withheld of:				$	22,083		$	739

*  See “Expense Reduction” in the Notes to the Financial Statements.

See Notes to the Financial Statements.

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Statement of Operations — (Continued)

For the Year Ended December 31, 2006

				The
				Paradigm			The Medical
				Portfolio			Portfolio
INVESTMENT INCOME:
	Dividends†			$	12,579,925		$	202,077
	Interest				12,075,130			57,972
	Income from securities lending				3,069,730			5,564
			Total investment income		27,724,785			265,613
EXPENSES:
	Investment advisory fees				15,460,876			187,359
	Administration fees				730,198			9,639
	Professional fees				150,710			1,693
	Fund accounting fees				332,042			6,692
	Trustees’ and Officers’ fees and expenses				70,840			577
	Custodian fees and expenses				539,928			9,929
	Other expenses				23,381			743
			Total expenses		17,307,975			216,632
			Expense reduction*		(1,030,377	)		(15,320	)
			Net expenses		16,277,598			201,312
	Net investment income				11,447,187			64,301
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
	Net realized gain on:
		Investments and foreign currency			3,329,122			575,494
	Net change in unrealized appreciation (depreciation) of:
		Investments and foreign currency			301,524,678			1,520,521
		Written option contracts			(862	)		—
Net gain on investments					304,852,938			2,096,015
Net increase in net assets resulting from operations				$	316,300,125		$	2,160,316
† Net of Foreign Taxes Withheld of:				$	582,252		$	15,353

*  See “Expense Reduction” in the Notes to Financial Statements.

See Notes to the Financial Statements.

122

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Statement of Operations — (Continued)

For the Year Ended December 31, 2006

							The Kinetics
				The Small Cap			Government
				Opportunities			Money
				Portfolio			Market Portfolio
INVESTMENT INCOME:
	Dividends†			$	2,143,111		$	—
	Interest				1,623,330			48,162
	Income from securities lending				631,355			—
			Total investment income		4,397,796			48,162
EXPENSES:
	Investment advisory fees				3,240,361			5,131
	Administration fees				156,220			667
	Professional fees				32,045			113
	Fund accounting fees				76,678			301
	Trustees and Officers’ fees and expenses				14,630			41
	Custodian fees and expenses				100,684			9,700
	Other expenses				5,594			21
			Total expenses		3,626,212			15,974
			Expense reduction*		(340,360	)		(3,968	)
			Net expenses		3,285,852			12,006
Net investment income					1,111,944			36,156
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
	Net realized loss on:
		Investments and foreign currency			(400,382	)		—
	Net change in unrealized appreciation of:
		Investments and foreign currency			69,120,933			—
Net gain on investments					68,720,551			—
Net increase in net assets resulting from operations				$	69,832,495		$	36,156
† Net of Foreign Taxes Withheld of:				$	23,496		$	—

*  See “Expense Reduction” in the Notes to Financial Statements.

See Notes to the Financial Statements.

123

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Statement of Operations — (Continued)

For the Year Ended December 31, 2006

KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

Statement of Operations — (Continued)

For the Period January 31, 2006(+) through December 31, 2006

				The Market
				Opportunities
				Portfolio
INVESTMENT INCOME:
	Dividends†			$	59,776
	Interest				53,260
	Income from securities lending				899
			Total investment income		113,935
EXPENSES:
	Investment advisory fees				72,294
	Administration fees				3,183
	Professional fees				8,085
	Fund accounting fees				5,010
	Trustees’ and Officers’ fees and expenses				288
	Custodian fees and expenses				16,040
			Total expenses		104,900
			Expense reduction*		(12,000	)
			Net expenses		92,900
Net investment income					21,035
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
	Net realized gain on:
		Investments and foreign currency			26
	Net change in unrealized appreciation of:
		Investments and foreign currency			1,726,740
Net gain on investments					1,726,766
Net increase in net assets resulting from operations				$	1,747,801
†Net of Foreign Taxes Withheld of:				$	1,642

^ Commencement of operations

*  See “Expense Reduction” in the Notes to the Financial Statements.

See Notes to the Financial Statements.

124

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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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income		$	326,003		$	2,268,661		$	102,903		$	174,358
	Net realized gain (loss) on sale of investments, foreign currency and written options			(11,570,086	)		(7,302,620	)		162,004			(20,871	)
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			34,154,147			1,383,278			307,369			(47,071	)
		Net increase (decrease) in net assets resulting from operations		22,910,064			(3,650,681	)		572,276			106,416
NET DECREASE IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS:
	Contributions			4,187,471			195,954			678,821			646,599
	Withdrawals			(38,591,597	)		(50,457,661	)		(1,160,881	)		(1,449,775	)
		Net decrease in net assets resulting from beneficial interest transactions		(34,404,126	)		(50,261,707	)		(482,060	)		(803,176	)
	Total increase (decrease) in net assets			(11,494,062	)		(53,912,388	)		90,216			(696,760	)
NET ASSETS:
	Beginning of year			148,797,116			202,709,504			3,896,888			4,593,648
	End of year		$	137,303,054		$	148,797,116		$	3,987,104		$	3,896,888

See Notes to the Financial Statements.

125

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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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income (loss)		$	11,447,187		$	362,091		$	64,301		$	(24,812	)
	Net realized gain on sale of investments, foreign currency and written options			3,329,122			273,557			575,494			1,895,925
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			301,523,816			37,043,510			1,520,521			(2,052,698	)
		Net increase (decrease) in net assets resulting from operations		316,300,125			37,679,158			2,160,316			(181,585	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS:
	Contributions			1,398,735,693			408,538,810			3,285,786			165,335
	Withdrawals			(82,493,045	)		(42,407,006	)		(3,740,306	)		(5,778,914	)
		Net increase (decrease) in net assets resulting from beneficial interest transactions		1,316,242,648			366,131,804			(454,520	)		(5,613,579	)
	Total increase (decrease) in net assets			1,632,542,773			403,810,962			1,705,796			(5,795,164	)
NET ASSETS:
	Beginning of year			529,218,393			125,407,431			14,536,954			20,332,118
	End of year		$	2,161,761,166		$	529,218,393		$	16,242,750		$	14,536,954

See Notes to the Financial Statements.

126

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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,
			2006			2005			2006			2005
OPERATIONS:
	Net investment income		$	1,111,944		$	436,012		$	36,156		$	18,134
	Net realized loss on sale of investments, foreign currency and written options			(400,382	)		(1,152,617	)		—			—
	Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options			69,120,933			10,833,455			—			—
		Net increase in net assets resulting from operations		69,832,495			10,116,850			36,156			18,134
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS:
	Contributions			305,126,355			91,619,332			1,321,498			383,201
	Withdrawals			(12,732,926	)		(11,574,985	)		(990,656	)		(511,184	)
		Net increase (decrease) in net assets resulting from beneficial interest transactions		292,393,429			80,044,347			330,842			(127,983	)
	Total increase (decrease) in net assets			362,225,924			90,161,197			366,998			(109,849	)
NET ASSETS:
	Beginning of year			128,835,892			38,674,695			1,071,361			1,181,210
	End of year		$	491,061,816		$	128,835,892		$	1,438,359		$	1,071,361

See Notes to the Financial Statements.

127

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Statements of Changes in Net Assets — (Continued)

			The Market
			Opportunities
			Portfolio
			From
			January 31, 2006^
			through
			December 31, 2006
OPERATIONS:
	Net investment income		$	21,035
	Net realized gain on sale of investments, foreign currency and written options			26
	Net change in unrealized appreciation of investments, foreign currency and written options			1,726,740
		Net increase in net assets resulting from operations		1,747,801
NET INCREASE IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS:
	Contributions			16,071,080
	Withdrawals			(237,812	)
		Net increase in net assets resulting from beneficial interest transactions		15,833,268
	Total increase in net assets			17,581,069
NET ASSETS:
	Beginning of period			—
	End of period		$	17,581,069

^ Commencement of operations.

See Notes to the Financial Statements.

128

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Notes to Financial Statements

December 31, 2006

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, The Kinetics Government Money Market Portfolio and The Market Opportunities 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. The Market Opportunities Portfolio commenced operations on January 31, 2006. Each of the remaining 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.

129

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Notes to Financial Statements — (Continued)

December 31, 2006

and foreign small capitalization companies that provide attractive valuation 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 Market Opportunities Portfolio invests primarily in the equity securities of U.S. and foreign companies engaged in capital markets or related to capital markets or in the gaming industry. 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, 2006, there were no fair valued securities held by the Master Portfolios.

130

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Notes to Financial Statements — (Continued)

December 31, 2006

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 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

131

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Notes to Financial Statements — (Continued)

December 31, 2006

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, 2006, 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.

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, 2006, the total expenses of The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio and The Market Opportunities Portfolio were reduced by $31,491, $1,349, $250,148, $6,391, $184,344 and $1,149, 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.

In addition, to the directed brokerage credits, U.S. Bancorp Fund Services, LLC (“USBFS”), the Master Portfolios’ service provider, has voluntarily agreed to waive all its service provider fees for the four months ended December 31, 2006 for consideration received through the Master Portfolios securities lending agreement. For the year ended December 31, 2006, the

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Notes to Financial Statements — (Continued)

December 31, 2006

total expenses of The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, The Market Opportunities Portfolio, and The Kinetics Government Money Market Portfolio were reduced by $53,882, $4,015, $780,229, $8,929, $156,016, $10,851 and $3,968, respectively.

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 33¹/3% 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.

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.

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Notes to Financial Statements — (Continued)

December 31, 2006

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, 2006, The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, The Kinetics Government Money Market Portfolio and The Market Opportunities Portfolio incurred expenses of $1,795,756, $43,811, $15,460,876, $187,359, $3,240,361, $5,131 and $72,294, respectively, pursuant to the Investment Advisory Agreements.

KBD Securities, LLC, an affiliate of the Adviser, received $91,524 in brokerage fee commissions with respect to the Portfolios’ portfolio transactions, which constituted 4% of the Portfolios’ brokerage commissions during the period.

Portfolio	Commissions
The Internet Portfolio	$	5,312
The Internet Emerging Growth Portfolio	$	1,569
The Paradigm Portfolio	$	62,827
The Medical Portfolio	$	1,850
The Small Cap Opportunities Portfolio	$	18,265
The Market Opportunities Portfolio	$	1,701

For the year ended December 31, 2006, the Trust was allocated $24,000 for the services of the Chief Compliance Officer employed by the Adviser.

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Notes to Financial Statements — (Continued)

December 31, 2006

4. Securities Transactions

Purchases and sales of investment securities, other than short-term investments, for the year ended December 31, 2006 were as follows:

	Purchases				Sales
	U.S.				U.S.
	Government		Other		Government		Other
The Internet Portfolio	$	—	$	16,623,588	$	—	$	48,446,666
The Internet Emerging Growth Portfolio		—		320,973		—		912,499
The Paradigm Portfolio		—		1,102,739,419		—		28,157,917
The Medical Portfolio		—		2,723,023		—		3,622,282
The Small Cap Opportunities Portfolio		—		279,158,756		—		13,246,641
The Market Opportunities Portfolio		—		14,974,338		—		9,433

As of December 31, 2006, unrealized appreciation (depreciation) on investment securities for federal income tax purposes was as follows:

	Net
	Appreciation			Appreciated		Depreciated
	(Depreciation)			Securities		Securities
The Internet Portfolio	$	43,124,728		$	50,405,790	$	(7,281,062	)
The Internet Emerging Growth Portfolio		899,213			1,388,784		(489,571	)
The Paradigm Portfolio		356,760,476			387,296,063		(30,535,587	)
The Medical Portfolio		(200,134	)		3,437,271		(3,637,405	)
The Small Cap Opportunities Portfolio		86,037,758			95,291,671		(9,253,913	)
The Kinetics Government Money Market Portfolio		—			—		—
The Market Opportunities Portfolio		1,561,593			1,964,886		(403,293	)

At December 31, 2006, the cost of investments for federal income tax purposes was $105,842,180, $3,151,733, $2,014,892,517, $16,909,408, $445,493,550, $1,438,815 and $17,233,385 for The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, The Kinetics Government Money Market Portfolio and The Market Opportunities Portfolio, respectively.

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KINETICS PORTFOLIOS TRUST — MASTER INVESTMENT PORTFOLIOS

Notes to Financial Statements — (Continued)

December 31, 2006

For the year ended December 31, 2006, the Master Portfolios wrote the following options:

	Number		Premium
	of Contracts		Amount
The Internet Portfolio
Outstanding at the Beginning of Year		5	$	6,985
Options Expired		—		—
Outstanding at the End of Year		5	$	6,985
The Internet Emerging Growth Portfolio
Outstanding at the Beginning of Year		40	$	22,479
Options Expired		—		—
Outstanding at the End of Year		40	$	22,479
The Paradigm Portfolio
Outstanding at the Beginning of Year		—	$	—
Options Written		20		49,948
Outstanding at the End of Year		20	$	49,938

5.   Portfolio Securities Loaned

As of December 31, 2006, 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, 2006, were as follows:

	Securities		Collateral
The Internet Portfolio	$	15,572,927	$	16,115,000
The Internet Emerging Growth Portfolio		97,200		100,000
The Paradigm Portfolio		208,222,280		225,408,950
The Medical Portfolio		419,396		506,700
The Small Cap Opportunities Portfolio		36,223,651		38,177,400
The Market Opportunities Portfolio		862,344		898,800

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Notes to Financial Statements — (Continued)

December 31, 2006

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,
		2006			2005		2004		2003		2002
Ratio of expenses to average net assets:
	Before expense reduction		1.39%			1.45%		1.50%		1.51%		1.51%
	After expense reduction		1.33%	(3)		1.44%		1.44%		1.51%		1.51%
Ratio of net investment income to average net assets:
	Before expense reduction		0.17%			1.35%		1.30%		0.99%		0.50%
	After expense reduction		0.23%	(3)		1.36%		1.36%		0.99%		0.50%
Portfolio turnover rate			11%			12%		42%		69%		41%

		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,
		2006			2005		2004		2003		2002
Ratio of expenses to average net assets:
	Before expense reduction		1.62%			1.73%		1.78%		1.84%		1.83%
	After expense reduction		1.46%	(3)		1.72%		1.73%		1.84%		1.83%
Ratio of net investment income (loss) to average net assets:
	Before expense reduction		2.78%			4.30%		2.77%		1.94%		(1.07%	)
	After expense reduction		2.94%	(3)		4.31%		2.82%		1.94%		(1.07%	)
Portfolio turnover rate			10%			2%		18%		20%		27%

		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,
		2006			2005		2004			2003		2002
Ratio of expenses to average net assets:
	Before expense reduction		1.40%			1.45%		1.52%			1.56%		1.64%
	After expense reduction		1.32%	(3)		1.40%		1.42%			1.46%		1.64%
Ratio of net investment income (loss) to average net assets:
	Before expense reduction		0.85%			0.07%		(0.18%	)		1.28%		(0.27%	)
	After expense reduction		0.93%	(3)		0.12%		(0.08%	)		1.38%		(0.27%	)
Portfolio turnover rate			3%			5%		52%			20%		40%

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Notes to Financial Statements — (Continued)

December 31, 2006

		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,
		2006			2005			2004			2003			2002
Ratio of expenses to average net assets:
	Before expense reduction		1.44%			1.50%			1.58%			1.53%			1.53%
	After expense reduction		1.34%	(3)		1.49%			1.57%			1.53%			1.53%
Ratio of net investment income (loss) to average net assets:
	Before expense reduction		0.33%			(0.17%	)		(0.33%	)		(0.56%	)		(0.47%	)
	After expense reduction		0.43%	(3)		(0.16%	)		(0.32%	)		(0.56%	)		(0.47%	)
Portfolio turnover rate			20%			2%			13%			16%			9%

		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,
		2006			2005		2004		2003		2002
Ratio of expenses to average net assets:
	Before expense reduction		1.40%			1.48%		1.55%		1.67%		1.66%
	After expense reduction		1.27%	(3)		1.37%		1.21%		1.49%		1.66%
Ratio of net investment income (loss) to average net assets:
	Before expense reduction		0.30%			0.46%		1.51%		2.88%		(0.29%	)
	After expense reduction(3)		0.43%	(3)		0.57%		1.85%		3.06%		(0.29%	)
Portfolio turnover rate			6%			4%		96%		180%		200%

		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,
		2006			2005		2004		2003		2002
Ratio of expenses to average net assets:
	Before expense reduction		1.56%			1.37%		0.83%		0.79%		0.75%
	After expense reduction		1.17%	(3)		1.37%		0.83%		0.79%		0.75%
Ratio of net investment income to average net assets:
	Before expense reduction		3.13%			1.58%		0.18%		0.15%		0.67%
	After expense reduction		3.52%	(3)		1.58%		0.18%		0.15%		0.67%
Portfolio turnover rate			N/A			N/A		N/A		N/A		N/A

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Notes to Financial Statements — (Continued)

December 31, 2006

		The Market
		Opportunities Portfolio
		January 31,
		2006(2)
		through
		December 31,
		2006
Ratio of expenses to average net assets:
	Before expense reduction		1.81%	(1)
	After expense reduction		1.61%	(1)(3)
Ratio of net investment income to average net assets:
	Before expense reduction		0.16%	(1)
	After expense reduction		0.36%	(1)(3)
Portfolio turnover rate			0%

(1)	Annualized.
(2)	Commencement of operations.
(3)	See footnote #2 for service provider, waiver discussion.

7.   New Accounting Pronouncements (Unaudited)

In June 2006, the Financial Accounting Standards Board (“FASB”) released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (“FIN 48”). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Trusts’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. To the extent that a tax benefit of a position is not deemed to meet the more-likely-than-not threshold, the Trusts would report an income tax expense in the statement of operations. Adoption of FIN 48 is required to be implemented no later than June 29, 2007 and is to be applied to all open tax years as of the effective date. At this time, management is evaluating the implications of FIN 48, and the impact, if any, of this standard on the Trusts’ financial statements has not yet been determined.

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements.” The Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles (GAAP), and expands disclosures about fair value measurements. The Statement establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from sources independent of the reporting entity (observable inputs) and (2) the reporting entity’s own assumptions about market participant assumptions developed

139

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Notes to Financial Statements — (Continued)

December 31, 2006

based on the best information available in the circumstances (unobservable inputs). The Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and is to be applied prospectively as of the beginning of the fiscal year in which this Statement is initially applied. At this time, management is evaluating the implications of FAS 157, and the impact, if any, of this standard on the Trusts’ financial statements has not yet been determined.

8.   Information about Proxy Voting (Unaudited)

Information regarding how Kinetics Portfolios Trust votes proxies relating to portfolio securities is available without charge upon request by calling toll-free at 1-800-930-3828 or by accessing the Funds’ website at www.kineticsfund.com and by accessing the SEC’s website at www.sec.gov. Information regarding how the Portfolios voted proxies relating to portfolio securities during the most recent twelve month period ended June 30, is 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.

9.   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 1-800-930-3828. 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.

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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, The Kinetics Government Money Market Portfolio, and The Market Opportunities Portfolio, each a series of shares of Kinetics Portfolios Trust (the “Trust”), as of December 31, 2006, and the related statements of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended and financial highlights for each of the three years in the period then ended except for The Market Opportunities Portfolio’s statement of operations, statement of changes in net assets and financial highlights for the period January 31, 2006 through December 31, 2006. 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 audits. 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, nor were the Portfolios required to have, 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, 2006, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly in all material respects, the financial position of the above mentioned Portfolios as of December 31, 2006, the results of their operations for the year then ended, the related statements of operations for the year then ended, statements of changes in net assets for each of the two years in the

141

period then ended and financial highlights for each of the three years in the period then ended except for The Market Opportunities Portfolio’s statement of operations, statement of changes in net assets and financial highlights for the period January 31, 2006 through December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

TAIT, WELLER & BAKER LLP

Philadelphia, Pennsylvania

March 1, 2007

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KINETICS PORTFOLIOS TRUST

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 1-800-930-3828.

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KINETICS PORTFOLIOS TRUST

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 c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		76	Independent Director/Trustee		Indefinite/ 7 years		14
Steven T. Russell c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		43	Independent Director/Trustee		Indefinite/ 7 years		14
Douglas Cohen, C.P.A. c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		46	Independent Director/Trustee		Indefinite/ 7 years		14
William J. Graham c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		45	Independent Director/Trustee		Indefinite/ 7 years		14
Joseph E. Breslin c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		53	Independent Director/Trustee		Indefinite/ 7 years		14

144

Principal Occupation During the Past Five Years	Other Directorships Held by Trustee/Director
Retired; Senior Advisor, Long Term Credit Bank of Japan, Ltd.; Executive Vice President, Long Term Credit Bank Trust Company (1987-1999).	Director, The Kinetics Funds (2003 to Present)
Attorney and Counselor at Law, Partner, Law Firm 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).	N/A
Sunrise Credit Services, Inc. (2005 to Present); Wagner & Zwerman, LLP Certified Public Accountant (1997 to 2005); Leon D. Alpern & Co. (1985 to 1997).	Director, The Kinetics Funds (1996 to Present)
Attorney, William J. Graham, PC (2001 to Present); Bracken & Margolin, LLP (1997 to 2001).	N/A
Chief Operating Officer, Aladdin Capital Management (2005 to Present); Independent Consultant Whitehall Asset Management (May 2003 to 2004); Consultant, Independence Community Bank (2003-2005); Senior Managing Director, Marketing & Sales, Whitehall Asset Management, a financial services company (1999 to May 2003).	Director, AIP Alternative Strategies Fund

145

KINETICS PORTFOLIOS TRUST

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* c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		54	Director/Trustee, Secretary		Indefinite/ 7 years		14
Peter B. Doyle* c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		45	Director/Trustee, President and Chairman of the Board		Indefinite/ 5 years		14
Leonid Polyakov* c/o Kinetics Asset Management, Inc. 16 New Broadway Sleepy Hollow, New York, 10591		48	Director/Trustee and Treasurer		Indefinite/ 5 years		14

 *  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.

146

Principal Occupation During the Past Five Years	Other Directorships Held by Trustee/Director
Chairman, The FRMO Corp. (2001 to Present) (provides consulting services to private 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.	Chairman of Horizon Asset Management; Chairman of FRMO Corporation
President, Kinetics Asset Management and Kinetics Fund Distributors, Inc. (2002 to 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)	Director, The Kinetics Funds (2001 to Present); Director and Officer of FRMO Corporation
CFO, Kinetics Asset Management, Inc. (2000 to Present); President, Kinetics Funds 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)	Director, The Kinetics Funds (2001 to Present)

**  The term “fund complex” refers to the Company and the Trust, which hold themselves out as related for investment purposes.

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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.

Custody Operations

1555 Rivercenter Drive, Suite 302

Milwaukee, WI 53212

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 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 $45,000 and $45,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005 and $55,000 and $55,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2006.

     (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 2005 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2006.

     (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, tax advice and tax planning are $12,000 and $12,000 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2005 and $15,400 and $15,400 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2006. 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 2005 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2006.

     (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 2005 and $0 and $0 for Kinetics Mutual Funds, Inc. and Kinetics Portfolios Trust, respectively, for 2006.

     (h) Not applicable as the response to (g) of this item is none.

Item 5. Audit Committee of Listed Registrants.

Not applicable to registrants who are not listed issuers (as defined in Rule 10A-3 under the Securities Exchange Act of 1934).

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.

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.

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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 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) Exhib 99 Code: Incorporated by reference to Item 12(c)(1) to the report filed on Form N-CSR on March 10, 2006 (Accession Number 0000950137-06-002846).
	(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
	(3) Not applicable to open-end investment companies.
(b)	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Filed herewith.

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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            03/09/07

     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            03/09/07

By (Signature and Title)	/s/ Leonid Polyakov
	Leonid Polyakov, Treasurer
Date           03/08/07

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