As filed with the Securities and Exchange
Commission on 8/26/03
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
1311 MAMARONECK AVENUE
WHITE PLAINS, NY 10605
----------------------
(Address of principal executive offices) (Zip code)
MR. LEONID POLYAKOV
1311 MAMARONECK AVENUE
WHITE PLAINS, NY 10605
-------------------
(Name and address of agent for service)
(800) 930-3828
--------------
Registrant's telephone number, including area code
Date of fiscal year end: DECEMBER 31, 2003
-----------------
Date of reporting period: JANUARY 1, 2003 TO JUNE 30, 2003
--------------------------------
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
JUNE 30, 2003 WWW.KINETICSFUNDS.COM
SEMI-ANNUAL REPORT
The INTERNET Fund
The Internet EMERGING GROWTH Fund
The PARADIGM Fund
The MEDICAL Fund
The SMALL CAP OPPORTUNITIES Fund
The KINETICS GOVERNMENT MONEY MARKET Fund
EACH A SERIES OF KINETICS MUTUAL FUNDS, INC.
[KINETICS MUTUAL FUNDS, INC. LOGO]
KINETICS MUTUAL FUNDS, INC.
TABLE OF CONTENTS
June 30, 2003
<Table>
<Caption>
PAGE
----
Shareholders' Letter........................................ 2
Investment Commentary....................................... 4
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
Statement of Assets & Liabilities......................... 10
Statement of Operations................................... 13
Statement of Changes in Net Assets........................ 16
Notes to Financial Statements............................. 23
Financial Highlights...................................... 32
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
Portfolio of Investments The Internet Portfolio........... 43
Portfolio of Investments The Internet Emerging Growth
Portfolio.............................................. 49
Portfolio of Investments The Paradigm Portfolio........... 53
Portfolio of Investments The Medical Portfolio............ 58
Portfolio of Investments The Small Cap Opportunities
Portfolio.............................................. 62
Portfolio of Investments The Kinetics Government Money
Market Portfolio....................................... 68
Portfolio of Options Written The Internet Portfolio....... 69
Portfolio of Options Written The Paradigm Portfolio....... 70
Portfolio of Options Written The Medical Portfolio........ 71
Portfolio of Options Written The Small Cap Opportunities
Portfolio.............................................. 72
Statement of Assets & Liabilities......................... 73
Statement of Operations................................... 76
Statement of Changes in Net Assets........................ 79
Notes to Financial Statements............................. 83
</Table>
1
KINETICS MUTUAL FUNDS, INC.
SHAREHOLDERS' LETTER
Dear Shareholders,
We are pleased to present the Kinetics Mutual Funds semi-annual report
for the period ended June 30, 2003. For the first six months of 2003,
our equity Funds posted strong investment advances (see Investment
Commentary). More gratifying than this seemingly long overdue
occurrence were the underlying business advances made by the majority
of the companies held by our Funds. Since we view the funds' stock
holdings as fractional ownership in the businesses themselves, we look
to the business operations to validate our investment thinking rather
than to the short-term randomness of the stock market. Why? Over short
time periods, the mismatch between stock prices and increased business
value can be rather dramatic. Longer term, however, we believe there
is a very high correlation between increased stock prices and
increased intrinsic business values. With this investment approach,
the intrinsic business values of the funds' holdings should be
substantially higher five years hence. We believe these increased
values should allow for very satisfactory investment returns when
viewed in the context of the overall market and today's interest
rates.
Kinetics Mutual Funds also had significant advances in other respects.
The sizes of our Small Cap Opportunities Fund and our Paradigm Fund
increased substantially since the start of the year, albeit from
relatively small asset bases. This investment inflow was, we believe,
largely a function of superior investment results over the last
several years and the Funds being accorded a level of recognition by
companies that rate mutual funds. It is very appropriate that these
Funds, particularly The Paradigm Fund, should have experienced a less
volatile ride over the last several years. These Funds have the
broadest mandates and can seek value across many different industries.
The Paradigm Fund has the further advantage of buying across all
market capitalizations. The growth in assets of these Funds is
important to existing shareholders because it may contribute to lower
expense ratios in the future.
We continue to inform our shareholders through our website,
www.kineticsfunds.com. This website provides a broad array of
information, including recent portfolio holdings, investment com-
2
mentary, newsflashes, recent performance data, and online access to
account information.
THE INTERNET FUND has produced satisfactory long-term returns, albeit
lumpy, by investing in the evolution of Internet-related technology.
This Fund is sector specific and should represent only a small
component of one's equity exposure.
THE INTERNET EMERGING GROWTH FUND focuses on early-life-cycle
companies that are positioned on the edge of the curve in the
evolution of Internet-related technology. This offering is a sector
fund.
THE PARADIGM FUND focuses on companies that have sustainable high
returns on equity. This Fund has produced positive returns over the
last 3 1/2 years. The typical large stock index has posted substantial
negative returns over the same time period. This Fund has the broadest
mandate of our equity offerings and can represent a much larger
exposure of one's equity holdings.
THE MEDICAL FUND provides an investment in scientific discovery within
the promising field of medical research, particularly in the
development of cancer treatments and therapies. The Fund focuses on
pharmaceutical/biotechnology companies and should be considered a
sector fund.
THE SMALL CAP OPPORTUNITIES FUND focuses on undervalued and special
situation small capitalization equities that have the potential for
rewarding long-term investment results. This Fund has a broad mandate,
but is limited as to market capitalization.
THE KINETICS GOVERNMENT MONEY MARKET FUND is a short-term investment
vehicle that serves to complement our equity product offerings.
/s/ Peter B. Doyle
Peter B. Doyle
Chief Investment Strategist
3
KINETICS MUTUAL FUNDS, INC.
INVESTMENT COMMENTARY
Dear Shareholders,
In our year-end 2002 Market Commentary, we duly noted our inability to
forecast short-term movements in the stock market. In fact, we have
such a strong conviction that we possess no "market" insight that we
have been prompted to rename this writing "Investment Commentary".
Perhaps we are deluded, but we view ourselves as being somewhat
competent to discuss investments. Had we been forced, at year-end
2002, to forecast the market for the first six months of 2003, we
would have ventured a guess that the market would have been lower.
This forecast, or guess, would have been based on our analysis that
the typical stock, in December 2002, violated the margin-of-safety
concept. That is, in our opinion, investors were routinely paying more
than a dollar for a dollar's worth of value. Even a very casual
observer of the financial markets would know that our hypothetical
forecast would have missed its mark by a considerable margin. Did our
admitted inability to forecast the market hurt our investment results?
On balance, the answer is a resounding no. Nor do we believe it will
ever hurt our investment results in the future.
For the first six months of 2003, the NASDAQ Composite Index and the
S&P 500 Index appreciated by 21.82% and 11.76%, respectively. These
two indices are commonly used benchmarks that measure how the
"typical" stock has performed, with the NASDAQ Composite capturing
more of a technology orientation. Over the same time period, our
Investor Class Funds posted the following positive results: Internet
Fund -- 26.78%; Small Cap Opportunities Fund -- 26.00%; Paradigm
Fund -- 20.75%; Medical Fund -- 18.00%; and the Internet Emerging
Growth Fund -- 15.12%. Our investment results were derived from
bottom-up stock analysis and a decidedly agnostic view of the market.
If, at the end of 2002, we believed that the typical stock was trading
above its intrinsic value, then one might conclude that the typical
stock we analyze today is even more overvalued. That is, in fact, the
case for the typical stock. Why has the market moved increasingly
higher?
The conventional wisdom of Wall Street is that corporate earnings will
recover during the second half of 2003. This recovery,
4
incidentally, was to have happened last year and the year before that
as well. Therefore, one should not be surprised by a failure of this
thesis, although it has been the justifying force behind the most
recent rise in stock prices. Underlying this earnings rebound is the
premise that the economy will post higher Gross Domestic Product
("GDP") growth, as a result of lower interest rates, tax cuts and the
conclusion of the Iraqi war.
The standard estimate of the potential growth of U.S GDP is 3%. Given
that the GDP of the United States is now approximately $10 trillion,
3% growth would entail the economy's expanding by approximately $300
billion annually. This certainly seems plausible, and it may very well
be achieved. On the other hand, it may not. At present, the sum total
of outstanding debt (government, corporate, financial, and consumer)
is approximately $34 trillion, or 3.4 times the amount of GDP.
In this situation, the $300 billion of GDP growth needs to be achieved
without real interest rates moving higher and without the same type of
monetary stimulus that we have had over the last 20+ years, where
rates fell from 21% to the present level of 1%. It is hard to conceive
of a world where interest rates move to -19% over the next 20 years.
Why is it critical that this growth be accomplished without a rise in
real interest rates? If rates were to rise just 1% from today's level,
then creditors would take the first $340 billion of expanded output
($34 trillion x 1%). The U.S. debt burden is now at such a level that
we run the very real risk of transferring future growth to creditors.
Historically, any country that has allowed its debt to become
significantly greater than its GDP has not ended up with a thriving
economy, but rather, the complete opposite. Our brief commentary does
not even consider the expansion of the U.S. population and the effect
that this might have on lowering per-capita GDP.
We are not predicting higher real interest rates, or even that the
forecasted GDP growth will not be achieved; however, investors should
certainly question conventional wisdom. Further, we believe it would
be a grievous investment mistake to construct entire portfolios upon
such a forecast being achieved. One might even profit greatly by
placing some of one's bets against such wisdom.
5
Our efforts have been, and remain, focused on the process of seeking
out non-codependent investments (companies that have no business
relationships with each other) that trade at a discount, preferably at
a steep discount, to their long-term underlying business value.
Acquisition at a discount to intrinsic value adds a cushion during
difficult market conditions. Our mutual success will be highly
correlated with the proper analysis of the companies we own. In this
regard, financial analysis of individual companies is a skill for
which we believe we possess some competence.
We thank you for your confidence and look forward to continuing to
provide you with products and services that will assist you in
achieving your investment goals.
/s/ Peter B. Doyle
Peter B. Doyle
Chief Investment Strategist
6
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.
BECAUSE THE FUNDS [OTHER THAN THE PARADIGM FUND, THE SMALL CAP
OPPORTUNITIES FUND AND THE KINETICS GOVERNMENT MONEY MARKET FUND]
INVEST IN A SINGLE INDUSTRY OR GEOGRAPHIC REGION, THEIR SHARES ARE
SUBJECT TO A HIGHER DEGREE OF RISK THAN FUNDS WITH A HIGHER LEVEL OF
DIVERSIFICATION. INTERNET AND BIOTECHNOLOGY STOCKS ARE SUBJECT TO A
RATE OF CHANGE IN TECHNOLOGY, OBSOLESCENCE AND COMPETITION WHICH 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.
7
AN INVESTMENT IN THE KINETICS GOVERNMENT MONEY MARKET FUND IS NOT
INSURED OR 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, EACH OF THE KINETICS MUTUAL FUNDS
PURSUE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE
ASSETS IN A CORRESPONDING PORTFOLIO SERIES OF KINETICS PORTFOLIOS
TRUST.
THE INFORMATION CONCERNING THE FUNDS INCLUDED IN THE SHAREHOLDER
REPORT CONTAIN CERTAIN FORWARD-LOOKING STATEMENTS ABOUT THE FACTORS
THAT MAY AFFECT THE PERFORMANCE OF THE FUNDS IN THE FUTURE. THESE
STATEMENTS ARE BASED ON FUND MANAGEMENT'S PREDICTIONS AND EXPECTATIONS
CONCERNING CERTAIN FUTURE EVENTS AND THEIR EXPECTED IMPACT ON THE
FUNDS, SUCH AS PERFORMANCE OF THE ECONOMY AS A WHOLE AND OF SPECIFIC
INDUSTRY SECTORS, CHANGES IN THE LEVELS OF INTEREST RATES, THE IMPACT
OF DEVELOPING WORLD EVENTS, AND OTHER FACTORS THAT MAY INFLUENCE THE
FUTURE PERFORMANCE OF THE FUNDS. MANAGEMENT BELIEVES THESE
FORWARD-LOOKING STATEMENTS TO BE REASONABLE, ALTHOUGH THEY ARE
INHERENTLY UNCERTAIN AND DIFFICULT TO PREDICT. ACTUAL EVENTS MAY CAUSE
ADJUSTMENTS IN PORTFOLIO MANAGEMENT STRATEGIES FROM THOSE CURRENTLY
EXPECTED TO BE EMPLOYED.
DISTRIBUTOR: KINETICS FUNDS DISTRIBUTOR, INC. IS NOT AN AFFILIATE OF
KINETICS MUTUAL FUNDS, INC. KINETICS FUNDS DISTRIBUTOR, INC. IS AN
AFFILIATE OF KINETICS ASSET MANAGEMENT, INC., INVESTMENT ADVISER TO
KINETICS MUTUAL FUNDS, INC.
(C)JANUARY 1, 2003 -- KINETICS ASSET MANAGEMENT, INC.
8
(This page intentionally left blank)
9
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING GROWTH
FUND FUND
- ----------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at
value*....................................... $ 260,962,733 $ 4,414,980
Receivable from Adviser........................ 16,778 20,877
Receivable for Fund shares sold................ 6,589,304 107,100
Prepaid expenses............................... 28,911 7,997
------------- ------------
Total assets................................. 267,597,726 4,550,954
------------- ------------
LIABILITIES:
Payable for Master Portfolio interest
purchased.................................... 6,379,616 106,109
Payable to Directors........................... 12,321 170
Payable for service fees....................... 56,203 869
Payable for distribution fees.................. 4,497 --
Payable for Fund shares repurchased............ 209,689 991
Accrued expenses and other liabilities......... 410,549 15,004
------------- ------------
Total liabilities............................ 7,072,875 123,143
------------- ------------
Net assets................................... $ 260,524,851 $ 4,427,811
============= ============
NET ASSETS CONSIST OF:
Paid in capital................................ $ 474,320,871 $ 15,996,847
Accumulated net investment income (loss)....... 26,898 (14,376)
Accumulated net realized loss on investments,
options and written option contracts......... (242,309,341) (10,746,835)
Net unrealized appreciation (depreciation) on:
Investments.................................. 28,452,825 (807,825)
Written option contracts..................... 33,598 --
------------- ------------
Net assets................................... $ 260,524,851 $ 4,427,811
============= ============
CALCULATION OF NET ASSET VALUE PER SHARE --
INVESTOR CLASS:
Net assets..................................... $ 256,487,797 $ 4,427,811
Shares outstanding............................. 12,119,312 1,187,496
Net asset value per share (offering and
redemption price)............................ $ 21.16 $ 3.73
============= ============
CALCULATION OF NET ASSET VALUE PER SHARE --
ADVISOR CLASS A:
Net assets..................................... $ 4,037,054
Shares outstanding............................. 194,248
Net asset value per share...................... $ 20.78
=============
Offering price per share ($20.78 divided by
.9425)....................................... $ 22.05
=============
</Table>
- ------------------
* 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 Fund's financial statements.
See Notes to the Financial Statements.
10
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE PARADIGM THE MEDICAL
FUND FUND
- ----------------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at value*............ $30,546,487 $26,745,265
Receivable from Adviser.................................... 4 --
Receivable for Fund shares sold............................ 337,246 77,840
Prepaid expenses........................................... 22,105 11,228
----------- -----------
Total assets............................................. 30,905,842 26,834,333
----------- -----------
LIABILITIES:
Payable for Master Portfolio interest purchased............ 254,037 64,812
Payable to Directors....................................... 787 1,211
Payable for service fees................................... 5,709 6,033
Payable for distribution fees.............................. 2,297 463
Payable for Fund shares repurchased........................ 83,209 13,029
Accrued expenses and other liabilities..................... 19,690 43,263
----------- -----------
Total liabilities........................................ 365,729 128,811
----------- -----------
Net assets............................................... $30,540,113 $26,705,522
=========== ===========
NET ASSETS CONSIST OF:
Paid in capital............................................ $27,450,154 $31,501,467
Accumulated net investment income (loss)................... 41,112 (154,184)
Accumulated net realized loss on investments, options and
written option contracts................................. (735,097) (2,515,002)
Net unrealized appreciation (depreciation) on:
Investments.............................................. 3,762,167 (1,990,304)
Written option contracts................................. 21,777 (136,455)
----------- -----------
Net assets............................................... $30,540,113 $26,705,522
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS:
Net assets................................................. $19,889,511 $25,981,653
Shares outstanding......................................... 1,627,057 1,731,363
Net asset value per share (offering and redemption
price)................................................... $ 12.22 $ 15.01
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A:
Net assets................................................. $ 9,925,094 $ 723,869
Shares outstanding......................................... 816,191 48,714
Net asset value per share.................................. $ 12.16 $ 14.86
=========== ===========
Offering price per share ($12.16 divided by .9425 and
$14.86 divided by .9425, respectively)................... $ 12.90 $ 15.77
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS C:
Net assets................................................. $ 725,508
Shares outstanding......................................... 59,973
Net asset value per share (offering and redemption
price)................................................... $ 12.10
===========
</Table>
- ------------------
* 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 Fund's financial statements.
See Notes to the Financial Statements.
11
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE SMALL THE KINETICS
CAP GOVERNMENT
OPPORTUNITIES MONEY
FUND MARKET FUND
- ------------------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at value*............ $32,161,738 $65,292,763
Receivable from Adviser.................................... 556 57,538
Receivable for Master Portfolio interest sold.............. 7,048,492 3,139,259
Receivable for Fund shares sold............................ 73,782 3,139,363
Prepaid expenses........................................... 18,695 13,678
----------- -----------
Total assets............................................. 39,303,263 71,642,601
----------- -----------
LIABILITIES:
Payable to Directors....................................... 952 2,763
Payable for service fees................................... 8,965 9,136
Payable for distribution fees.............................. 228 --
Payable for Fund shares repurchased........................ 7,122,275 6,278,622
Accrued expenses and other liabilities..................... 22,081 49,935
----------- -----------
Total liabilities........................................ 7,154,501 6,340,456
----------- -----------
Net assets............................................... $32,148,762 $65,302,145
=========== ===========
NET ASSETS CONSIST OF:
Paid in capital............................................ $30,541,803 $65,302,145
Accumulated net investment income.......................... 133,799 --
Accumulated net realized loss on investments, options and
written option contracts................................. (1,636,821) --
Net unrealized appreciation on:
Investments.............................................. 3,095,273 --
Written option contracts................................. 14,708 --
----------- -----------
Net assets............................................... $32,148,762 $65,302,145
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS:
Net assets................................................. $31,014,605 $65,302,145
Shares outstanding......................................... 2,451,013 65,302,145
Net asset value per share (offering and redemption
price)................................................... $ 12.65 $ 1.00
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A:
Net assets................................................. $ 1,134,157
Shares outstanding......................................... 89,851
Net asset value per share.................................. $ 12.62
===========
Offering price per share ($12.62 divided by .9425)......... $ 13.39
===========
</Table>
- ------------------
* 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 Fund's financial statements.
See Notes to the Financial Statements.
12
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING
FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 725,348 $ 11,236
Interest.................................................. 2,213,319 22,170
Income from securities lending............................ 12,525 128
----------- --------
Total investment income............................... 2,951,192 33,534
----------- --------
EXPENSES:
Expenses allocated from Master Portfolios................. 1,843,470 30,638
Shareholder servicing fees and expenses................... 824,024 23,413
Administration fees....................................... 79,424 1,096
Reports to shareholders................................... 68,015 858
Registration fees......................................... 17,903 6,659
Professional fees......................................... 40,118 3,465
Directors' fees and expenses.............................. 19,661 266
Fund accounting fees...................................... 6,275 --
Distribution fees -- Advisor Class A...................... 14,891 --
Other expenses............................................ 9,604 137
----------- --------
Total expenses........................................ 2,923,385 66,532
Less, expense reimbursement and waiver.................... -- (20,180)
----------- --------
Net expenses.......................................... 2,923,385 46,352
----------- --------
Net investment income (loss).......................... 27,807 (12,818)
----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain (loss) on:
Investments and foreign currency...................... (8,591,931) (22,544)
Written option contracts expired or closed............ (1,940,185) 9,218
Net change in unrealized appreciation (depreciation) of:
Investments and foreign currency...................... 72,151,974 524,516
Written option contracts.............................. (81,101) (5,853)
----------- --------
Net gain on investments............................... 61,538,757 505,337
----------- --------
Net increase in net assets resulting from
operations.......................................... $61,566,564 $492,519
=========== ========
+ Net of Foreign Taxes Withheld of: $ 54,142 $ 292
=========== ========
</Table>
See Notes to the Financial Statements.
13
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE
PARADIGM THE MEDICAL
FUND FUND
- --------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 112,056 $ 113,309
Interest.................................................. 131,194 38,291
Income from securities lending............................ 597 2,008
---------- ----------
Total investment income............................... 243,847 153,608
---------- ----------
EXPENSES:
Expenses allocated from Master Portfolios................. 121,679 186,862
Shareholder servicing fees and expenses................... 37,526 84,101
Administration fees....................................... 4,879 7,961
Reports to shareholders................................... 5,668 6,465
Registration fees......................................... 17,555 12,385
Professional fees......................................... 3,041 4,351
Directors' fees and expenses.............................. 1,260 1,911
Fund accounting fees...................................... 447 592
Distribution fees -- Advisor Class A...................... 8,220 2,051
Distribution fees -- Advisor Class C...................... 2,167 --
Other expenses............................................ 293 1,113
---------- ----------
Net expenses.......................................... 202,735 307,792
---------- ----------
Net investment gain (loss)............................ 41,112 (154,184)
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain (loss) on:
Investments and foreign currency...................... (201,775) (210,480)
Written option contracts expired or closed............ 28,860 116,662
Net change in unrealized appreciation (depreciation) of:
Investments and foreign currency...................... 3,409,034 4,576,646
Written option contracts.............................. 26,165 (292,185)
---------- ----------
Net gain on investments............................... 3,262,284 4,190,643
---------- ----------
Net increase in net assets resulting from
operations.......................................... $3,303,396 $4,036,459
========== ==========
+ Net of Foreign Taxes Withheld of: $ 5,234 $ 11,289
========== ==========
</Table>
See Notes to the Financial Statements.
14
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE KINETICS
THE SMALL CAP GOVERNMENT
OPPORTUNITIES MONEY MARKET
FUND FUND
- ------------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 123,825 $ --
Interest.................................................. 206,399 339,517
Income from securities lending............................ 96 --
---------- --------
Total investment income............................... 330,320 339,517
---------- --------
EXPENSES:
Expenses allocated from Master Portfolios................. 129,147 247,884
Shareholder servicing fees and expenses................... 36,375 95,782
Administration fees....................................... 4,395 22,846
Reports to shareholders................................... 6,423 --
Registration fees......................................... 14,574 9,172
Professional fees......................................... 3,321 13,315
Directors' fees and expenses.............................. 1,097 5,522
Fund accounting fees...................................... 350 --
Distribution fees -- Advisor Class A...................... 618 --
Other expenses............................................ 221 1,070
---------- --------
Total expenses........................................ 196,521 395,591
Less, expense reimbursement and waiver.................... -- (56,074)
---------- --------
Net expenses.......................................... 196,521 339,517
---------- --------
Net investment income (loss).......................... 133,799 --
---------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain (loss) on:
Investments and foreign currency...................... (78,532) --
Written option contracts expired or closed............ 1,177 --
Net change in unrealized appreciation of:
Investments and foreign currency...................... 3,173,279 --
Written option contracts.............................. 10,504 --
---------- --------
Net gain on investments............................... 3,106,428 --
---------- --------
Net increase in net assets resulting from
operations.......................................... $3,240,227 $ --
========== ========
+ Net of Foreign Taxes Withheld of: $ 332 $ --
========== ========
</Table>
See Notes to the Financial Statements.
15
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE INTERNET EMERGING
THE INTERNET FUND GROWTH FUND
--------------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- --------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)......... $ 27,807 $ (1,207,762) $ (12,818) $ (80,485)
Net realized loss on sale of
investments, foreign currency and
written option contracts expired or
closed............................. (10,532,116) (119,819,338) (13,326) (2,201,840)
Net change in unrealized appreciation
of investments, foreign currency
and written options................ 72,070,873 59,166,667 518,663 1,051,111
--------------- --------------- ---------- -----------
Net increase (decrease) in net
assets resulting from
operations..................... 61,566,564 (61,860,433) 492,519 (1,231,214)
--------------- --------------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS --
INVESTOR CLASS:
Net investment income................ -- -- -- --
Net realized gains................... -- -- -- --
--------------- --------------- ---------- -----------
Total distributions.............. -- -- -- --
--------------- --------------- ---------- -----------
DISTRIBUTIONS TO SHAREHOLDERS --
ADVISOR CLASS A:
Net investment income................ -- -- N/A N/A
Net realized gains................... -- -- N/A N/A
--------------- --------------- ---------- -----------
Total distributions.............. -- -- N/A N/A
--------------- --------------- ---------- -----------
CAPITAL SHARE TRANSACTIONS -- INVESTOR
CLASS:
Proceeds from shares sold............ 1,561,597,468 5,646,935,786 881,232 554,524
Proceeds from shares issued to
holders in reinvestment of
dividends.......................... -- -- -- --
Cost of shares redeemed.............. (1,553,902,955) (5,691,413,210) (283,906) (1,262,818)
--------------- --------------- ---------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions............. 7,694,513 (44,477,424) 597,326 (708,294)
--------------- --------------- ---------- -----------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS A:
Proceeds from shares sold............ 566,585,699 1,408,657,744 N/A N/A
Proceeds from shares issued to
holders in reinvestment of
dividends.......................... -- -- N/A N/A
Cost of shares redeemed.............. (565,446,712) (1,410,963,079) N/A N/A
--------------- --------------- ---------- -----------
Net increase (decrease) in net
assets resulting from capital
share transactions............. 1,138,987 (2,305,335) N/A N/A
--------------- --------------- ---------- -----------
TOTAL INCREASE (DECREASE) IN NET
ASSETS............................... 70,400,064 (108,643,192) 1,089,845 (1,939,508)
NET ASSETS:
Beginning of period.................. 190,124,787 298,767,979 3,337,966 5,277,474
--------------- --------------- ---------- -----------
End of period*....................... $ 260,524,851 $ 190,124,787 $4,427,811 $ 3,337,966
=============== =============== ========== ===========
</Table>
See Notes to the Financial Statements.
16
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
<Table>
<Caption>
THE INTERNET EMERGING
THE INTERNET FUND GROWTH FUND
--------------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- --------------------------------------------------------------------------------------------------------
*Including undistributed net
investment income (loss) of:......... $ 26,898 $ (909) $ (14,376) $ (1,558)
--------------- --------------- ---------- -----------
CHANGES IN SHARES
OUTSTANDING -- INVESTOR CLASS:
Shares sold.......................... 89,735,352 306,385,784 243,446 145,062
Shares issued in reinvestment of
dividends and distributions........ -- -- -- --
Shares redeemed...................... (88,976,638) (308,686,468) (85,570) (342,798)
--------------- --------------- ---------- -----------
Net increase (decrease) in shares
outstanding.................... 758,714 (2,300,684) 157,876 (197,736)
=============== =============== ========== ===========
CHANGES IN SHARES OUTSTANDING --
CLASS A:
Shares sold.......................... 32,341,793 81,574,373
Shares issued in reinvestments of
dividends and distributions........ -- --
Shares redeemed...................... (32,178,304) (81,588,440)
--------------- ---------------
Net increase (decrease) in shares
outstanding...................... 163,489 (14,067)
=============== ===============
</Table>
See Notes to the Financial Statements.
17
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE PARADIGM FUND THE MEDICAL FUND
---------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)............. $ 41,112 $ (155,724) $ (154,184) $ (447,134)
Net realized loss on sale of investments,
foreign currency and written option
contracts expired or closed............ (172,915) (453,184) (93,818) (2,214,209)
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and written options........... 3,435,199 111,727 4,284,461 (8,859,857)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from operations.......... 3,303,396 (497,181) 4,036,459 (11,521,200)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- INVESTOR CLASS:
Net investment income.................... -- -- -- --
Net realized gain........................ -- -- -- (129,541)
------------ ------------ ------------ ------------
Total distributions.................. -- -- -- (129,541)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- ADVISOR CLASS A:
Net investment income.................... -- -- -- --
Net realized gain........................ -- -- -- (4,793)
------------ ------------ ------------ ------------
Total distributions.................. -- -- -- (4,793)
------------ ------------ ------------ ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- ADVISOR CLASS C:
Net investment income.................... -- -- N/A N/A
Net realized gain........................ -- -- N/A N/A
------------ ------------ ------------ ------------
Total distributions.................. -- -- N/A N/A
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS -- INVESTOR
CLASS:
Proceeds from shares sold................ 29,121,484 22,426,587 49,429,559 86,853,152
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- -- -- 126,906
Cost of shares redeemed.................. (16,043,619) (21,978,565) (49,829,062) (93,675,221)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... 13,077,865 448,022 (399,503) (6,695,163)
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS A:
Proceeds from shares sold................ 14,792,602 3,090,062 36,313,366 65,379,296
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- -- -- 4,401
Cost of shares redeemed.................. (11,237,330) (1,965,920) (36,643,681) (65,253,538)
------------ ------------ ------------ ------------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... 3,555,272 1,124,142 (330,315) 130,159
------------ ------------ ------------ ------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS C:
Proceeds from shares sold................ 270,675 550,010 N/A N/A
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- -- N/A N/A
Cost of shares redeemed.................. (172,239) (27,997) N/A N/A
------------ ------------ ------------ ------------
Net increase in net assets resulting
from capital share transactions.... 98,436 522,013 N/A N/A
------------ ------------ ------------ ------------
</Table>
See Notes to the Financial Statements.
18
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
<Table>
<Caption>
THE PARADIGM FUND THE MEDICAL FUND
---------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS... $ 20,034,969 $ 1,596,996 $ 3,306,641 $(18,220,538)
NET ASSETS:
Beginning of period...................... 10,505,144 8,908,148 23,398,881 41,619,419
------------ ------------ ------------ ------------
End of period*........................... $ 30,504,113 $10,505,144 $ 26,705,522 $ 23,398,881
============ ============ ============ ============
*Including undistributed net investment
income (loss) of:........................ $ 41,112 $ -- $ (154,184) $ --
------------ ------------ ------------ ------------
CHANGES IN SHARES
OUTSTANDING -- INVESTOR CLASS:
Shares sold.............................. 2,695,689 2,247,157 3,756,570 6,260,737
Shares issued in reinvestment of
dividends and distributions............ -- -- -- 10,001
Shares redeemed.......................... (1,567,150) (2,202,818) (3,801,729) (6,732,101)
------------ ------------ ------------ ------------
Net increase (decrease) in shares
outstanding........................ 1,128,539 44,339 (45,159) (461,363)
============ ============ ============ ============
CHANGES IN SHARES OUTSTANDING -- CLASS A:
Shares sold.............................. 1,287,100 293,855 2,699,084 4,842,360
Shares issued in reinvestment of
dividends and distributions............ -- -- -- 350
Shares redeemed.......................... (961,524) (189,746) (2,713,361) (4,846,511)
------------ ------------ ------------ ------------
Net increase (decrease) in shares
outstanding........................ 325,576 104,109 (14,277) (3,801)
============ ============ ============ ============
CHANGES IN SHARES OUTSTANDING -- CLASS C:
Shares sold.............................. 25,173 54,355
Shares issued on reinvestment of
dividends and distributions............ -- --
Shares redeemed.......................... (16,827) (2,728)
------------ ------------
Net increase in shares outstanding... 8,346 51,627
============ ============
</Table>
See Notes to the Financial Statements.
19
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES FUND
----------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)........................... $ 133,799 $ (104,261)
Net realized loss on sale of investments, foreign
currency and written option contracts expired or
closed............................................... (77,355) (1,536,495)
Net change in unrealized appreciation (depreciation) of
investments, foreign currency and written options.... 3,183,783 (648,470)
------------- ------------
Net increase or (decrease) in net assets resulting
from operations.................................. 3,240,227 (2,289,226)
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR CLASS:
Net investment income.................................. -- --
Net realized gains..................................... -- (36,678)
------------- ------------
Total distributions................................ -- (36,678)
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A:
Net investment income.................................. -- --
Net realized gains..................................... -- (1,183)
------------- ------------
Total distributions................................ -- (1,183)
------------- ------------
CAPITAL SHARE TRANSACTIONS -- INVESTOR CLASS:
Proceeds from shares sold.............................. 182,855,462 74,507,932
Proceeds from shares issued to holders in reinvestment
of dividends......................................... -- 22,807
Cost of shares redeemed................................ (158,277,946) (78,255,929)
------------- ------------
Net increase (decrease) in net assets resulting
from capital share transactions.................. 24,577,516 (3,725,190)
------------- ------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A:
Proceeds from shares sold.............................. 1,039,568 445,436
Proceeds from shares issued to holders in reinvestment
of dividends......................................... -- 1,183
Cost of shares redeemed................................ (193,557) (176,614)
------------- ------------
Net increase in net assets resulting from capital
share transactions............................... 846,011 270,005
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 28,663,754 (5,782,272)
NET ASSETS:
Beginning of period...................................... 3,485,008 9,267,208
------------- ------------
End of period*........................................... $ 32,148,762 $ 3,485,008
============= ============
*Including undistributed net investment income of:....... $ 133,799 $ --
------------- ------------
</Table>
See Notes to the Financial Statements.
20
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES FUND
----------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
- ---------------------------------------------------------------------------------------
CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS:
Shares sold............................................ 16,789,864 6,817,655
Shares issued in reinvestment of dividends and
distributions........................................ -- 2,290
Shares redeemed........................................ (14,668,729) (7,129,102)
------------- ------------
Net increase (decrease) in shares outstanding...... 2,121,135 (309,157)
============= ============
CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A:
Shares sold............................................ 87,897 31,522
Shares issued in reinvestment of dividends and
distributions........................................ -- 119
Shares redeemed........................................ (15,242) (14,510)
------------- ------------
Net increase in shares outstanding................. 72,655 17,131
============= ============
</Table>
See Notes to the Financial Statements.
21
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE KINETICS GOVERNMENT
MONEY MARKET FUND
---------------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................... $ -- $ 176,234
--------------- ---------------
Net increase in net assets resulting from
operations.................................... -- 176,234
--------------- ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income............................... -- (176,234)
Net realized gain on securities transactions........ -- --
--------------- ---------------
Total dividends and distributions............... -- (176,234)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from shares sold....................... 2,307,263,118 7,257,132,457
Reinvestment of distributions....................... -- 24,888
Cost of shares redeemed............................. (2,370,618,021) (7,223,386,603)
--------------- ---------------
Net increase (decrease) in net assets from
capital share transactions.................... (63,354,903) 33,770,742
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS............... (63,354,903) 33,770,742
NET ASSETS:
Beginning of period................................. 128,657,048 94,886,306
--------------- ---------------
End of period*...................................... $ 65,302,145 $ 128,657,048
=============== ===============
*Including undistributed net investment income of:.... $ -- $ --
=============== ===============
CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS:
Shares sold......................................... 2,307,263,118 7,257,132,457
Shares issued in reinvestment of dividends and
distributions..................................... -- 24,888
Shares redeemed..................................... (2,370,618,021) (7,223,386,603)
--------------- ---------------
Net increase (decrease) in shares outstanding... (63,354,903) 33,770,742
=============== ===============
</Table>
See Notes to the Financial Statements.
22
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (Unaudited)
1. ORGANIZATION
Kinetics Mutual Funds, Inc. (the "Company") is registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), and is incorporated in the
State of Maryland. The Company is an open-end management investment company
issuing its shares in series. One billion shares are authorized for the Company
with a par value of $0.001 per share. The series of the Company presently
authorized are The Internet Fund ("Internet"), The Internet Emerging Growth Fund
("Emerging"),The Paradigm Fund ("Paradigm"), The Medical Fund ("Medical"), The
Small Cap Opportunities Fund ("Small Cap"), and The Kinetics Government Money
Market Fund ("Government") (each a "Feeder Fund" and collectively, the "Feeder
Funds"). Investment operations of the Funds began on October 21, 1996
(Internet), September 30, 1999 (Medical), December 31, 1999 (Emerging and
Paradigm), February 3, 2000 (Government), and March 20, 2000 (Small Cap). Each
series, unlike many other investment companies which directly acquire and manage
their own portfolios of securities, seeks its investment objective by investing
all of its investable assets in a corresponding portfolio series (each a "Master
Portfolio" and collectively the "Master Portfolios") of Kinetics Portfolios
Trust (the "Trust").
On April 28, 2000, each Fund in the Company entered into a master-feeder fund
structure. By entering into this structure, each Feeder Fund invested all of its
assets in a corresponding Master Portfolio which had the same investment
objective as the Feeder Fund. Each Master Portfolio has multiple feeder funds.
Each Feeder Fund receives a proportionate amount of interest in the Master
Portfolio equal to its relative contribution of capital. Thus, each Feeder Fund
is allocated its portion of income, gains (losses) and expenses from the Master
Portfolio.
Each Feeder Fund's respective interest in the corresponding Master Portfolio as
of June 30, 2003 is as follows:
<Table>
<Caption>
INTEREST IN
MASTER PORTFOLIO
----------------
Internet Fund......................................... 99.998%
Emerging Fund......................................... 99.888%
Paradigm Fund......................................... 99.955%
Medical Fund.......................................... 99.963%
Small Cap Fund........................................ 99.962%
Government Fund....................................... 99.961%
</Table>
Prior to the conversion to a master-feeder fund structure on April 28, 2000,
each then existing Feeder Fund conducted its own investment operations.
23
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
Effective April 26, 2001, the Internet, Paradigm and Medical Funds issued an
additional class of shares -- Advisor Class A. Effective December 31, 2001, the
Small Cap Fund issued an additional class of shares -- Advisor Class A. Advisor
Class A shares are subject to an annual Rule 12b-1 fee of 0.25% of average daily
net assets. The Advisor Class A shares are also subject to a maximum 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. The
Investor 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 by the Advisor Class A and Class C shares, voting rights on matters
pertaining to a single class of shares and the exchange privileges of each class
of shares.
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 (whether domestic or foreign) for which market quotations
are readily available are valued at the last quoted sale price as of 4:00 p.m.
Eastern time on the day the valuation is made. 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").
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 most recent bid price. Fixed-income securities
(other than obligations having a maturity of 60 days or less) are normally
valued on the basis of quotes obtained from pricing services, which take into
account appropriate factors such as institutional sized trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data.
Investments in The Kinetics Government Money Market Portfolio and instruments
with remaining maturities of 60 days or less are valued at
24
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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 June 30, 2003, the Master Portfolios did
not hold any investment securities which were determined to be fair valued
pursuant to the guidelines adopted by the Board of Trustees.
REPURCHASE AGREEMENTS
Each Master Portfolio may enter into repurchase agreements with banks that are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are primary dealers in U.S. Government
Securities. In connection with transactions in repurchase agreements, it is the
Trust's policy that the Master Portfolio receive, as collateral, securities
whose market value, including accrued interest, at all times will be at least
equal to 100% of the amount invested by the Master Portfolio in each repurchase
agreement. If the seller defaults, and the value of the collateral declines,
realization of the collateral by the Master Portfolio may be delayed or limited.
WRITTEN OPTION ACCOUNTING
The Master Portfolios may write (sell) call or put options for trading or
hedging purposes. When a Master Portfolio writes an option, an amount equal to
the premium received by the Master Portfolio is included in the Statement of
Assets and Liabilities as an asset and an equivalent liability. The amount of
the liability is subsequently marked-to-market to reflect the current 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
25
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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 daily rates of exchange,
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, 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 June 30, 2003, the Master Portfolios
did not hold any investment securities which were determined to be restricted
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.
26
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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 to no more than 33 1/3% of its assets.
Securities lending and repurchase transactions will be fully collateralized at
all times with cash and/or short-term debt obligations. The Master Portfolios
receive interest on the collateral received as well as a fee for the securities
loaned.
EXPENSE ALLOCATION
Common expenses incurred by Feeder Funds are allocated among the Feeder Funds
(i) based upon relative average net assets, (ii) as incurred on a specific
identification basis, or (iii) equally among the Feeder Funds, depending on the
nature of the expenditure.
Each Feeder Fund records its proportionate share of the Master Portfolio's
expenses on a daily basis. In addition, each Feeder Fund accrues its own
separate expenses. Any cap on expenses includes Feeder Fund specific expenses as
well as the expenses allocated from the Master Portfolio.
FEDERAL INCOME TAXES
Each Master Portfolio intends to qualify as a partnership for federal income tax
purposes. Therefore, the Master Portfolios believe they will not be subject to
any federal income tax on their income and net realized capital gains (if any).
However, each investor in the Master Portfolios will report its allocable share
of the Master Portfolio's income and capital gains for purposes of determining
its federal income tax liability.
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 Funds may utilize earnings and profits
distributed to shareholders on redemption of shares as part of the dividends
paid deduction for income tax purposes.
27
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
Where appropriate, reclassifications between capital accounts are made for such
differences that are permanent in nature.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
OTHER
Realized gains and losses on the sale of investments are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend date and
interest income is recognized on the accrual basis. Income, expenses (other than
expenses attributable to a specific class) and realized and unrealized gains or
losses on investments are allocated to each class of shares based on its
relative net assets.
3. INVESTMENT ADVISER
Effective April 28, 2000, the Trust has an Investment Advisory Agreement (the
"Agreement") 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 Agreement,
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. Prior to January 1, 2002, the Adviser had contractually agreed to pay
all operating expenses in excess of the annual rates presented below as applied
to each Feeder Fund's daily net assets. The expense cap includes Feeder
Fund-specific expenses as well as the Master Portfolio's expenses allocated to
the Feeder Fund. Under the terms of the Agreement, any Feeder Fund expenses
waived or reimbursed by the Adviser may be recovered by the Adviser to the
extent actual operating expenses for a subsequent period are less than the
expense limitation caps at the time of the waiver or reimbursement. The Adviser
intends to seek potential recovery of such amounts for a period of three years
from the fiscal year in which such amounts were waived or reimbursed. Waivers
and reimbursements by
28
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
the Adviser in years prior to 2002 which are subject to potential future
recovery include:
<Table>
<Caption>
2001 2000
------- --------
Internet................................................ $ -- $462,775
Emerging................................................ $63,887 $ 15,222
Paradigm................................................ $45,940 $ 19,743
Medical................................................. $ -- $ 93,681
Small Cap............................................... $45,787 $ 11,899
Government.............................................. $44,751 $ --
</Table>
Although the contractual Expense Waiver and Reimbursement Agreement expired on
December 31, 2001, the Adviser has voluntarily agreed to continue to pay all
operating expenses in excess of the annual rates represented below. The Adviser
may discontinue the voluntary waiver at any time. For the six months ended June
30, 2003, the amounts earned by the Adviser and the reimbursed expenses for the
Feeder Funds are as follows:
<Table>
<Caption>
INTERNET EMERGING
-------- --------
Annual Advisory Rate...................................... 1.25% 1.25%
Annual Cap on Expenses -- Investor Class.................. -- 2.74%
Annual Cap on Expenses -- Advisor Class A................. -- N/A
Expenses Reimbursed by Adviser............................ $ -- $20,180
</Table>
<Table>
<Caption>
PARADIGM MEDICAL
-------- -------
Annual Advisory Rate....................................... 1.25% 1.25%
Annual Cap on Expenses -- Investor Class................... 2.74% --
Annual Cap on Expenses -- Advisor Class A.................. 2.99% --
Annual Cap on Expenses -- Advisor Class C.................. 3.49% N/A
Expenses Reimbursed by Adviser............................. $ -- $ --
</Table>
<Table>
<Caption>
SMALL CAP GOVERNMENT
--------- ----------
Annual Advisory Rate.................................. 1.25% 0.50%
Annual Cap on Expenses -- Investor Class.............. 2.74% 1.25%
Annual Cap on Expenses -- Advisor Class A............. 2.99% N/A
Expenses Reimbursed by Adviser........................ $ -- $56,074
</Table>
The Adviser receives a shareholder servicing fee from 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. The Adviser is responsible for paying a portion
of these shareholder servicing fees to various agents which have a written
shareholder servicing agreement with the Adviser and who perform shareholder
servicing functions and maintenance of shareholder accounts on behalf of their
clients who own shares of the Feeder Funds.
29
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
The Company, on behalf of the Funds, has adopted two Retail Distribution Plans
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "12b-1
Plans"). One Plan is for Advisor Class A shares, while the other Plan is for
Advisor Classes B & 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 such
shares to the Distributor or other qualified recipients under the Plan. During
the six months ended June 30, 2003, payments under such plan with respect to
Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds
were limited to 0.25% of the average daily net asset value of such shares of
such Funds. During the six months ended June 30, 2003, the Advisor Class A
shares of the Internet, Paradigm, Medical and Small Cap Funds incurred expenses
of $14,891, $8,220, $2,051 and $618, respectively, pursuant to the 12b-1 Plan,
for such shares. Under the second Plan, Advisor Classes B & C shares pay an
annual rate of 0.75% of the average daily net asset value of such shares. During
the six months ended June 30, 2003, Paradigm Class C shares incurred expenses of
$2,167, pursuant to the 12b-1 Plan. Through June 30, 2003, the Funds had not
issued any Advisor Class B shares.
4. INCOME TAXES
At June 30, 2003, the Feeder Funds had accumulated net realized capital loss
carryovers expiring in the following years.
<Table>
<Caption>
FEEDER FUND 2010 2009 2008 2007
----------- ------------ ----------- ---------- -----------
Internet............. $140,178,775 $58,617,473 $ -- $31,189,619
Emerging............. $ 2,635,505 $ 5,481,052 $2,615,474 $ --
Paradigm............. $ 357,103 $ -- $ 86,123 $ --
Medical.............. $ 2,056,578 $ -- $ -- $ --
Small Cap............ $ 1,437,670 $ -- $ -- $ --
</Table>
To the extent that the Feeder Funds realize future net capital gains, those
gains will be offset by any unused capital loss carryovers.
At June 30, 2003, the following Feeder Funds deferred, on a tax basis, post-
October losses of:
<Table>
<Caption>
FEEDER FUND POST-OCTOBER LOSSES
----------- -------------------
Emerging................................................... $ 1,479
Paradigm................................................... 100,414
Small Cap.................................................. 121,796
</Table>
For the six months ended June 30, 2003, the Feeder Funds did not pay any
dividends or distributions. For the year ended December 31, 2002, the Medical
Fund paid a short-term capital gain distribution of $0.03363 per
30
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
share or $56,921 to the Investor Class shares and $2,107 to the Advisor Class A
shares which is characterized as ordinary income for income tax purposes.
The Medical Fund paid a long-term capital gain distribution of $0.04291 per
share or $72,620 to the Investor Class shares and $2,686 to the Advisor Class A
shares. The Small Cap Fund paid a short-term capital gain distribution of
$0.06727 per share or $36,678 to the Investor Class shares and $1,183 to the
Advisor Class A shares which is characterized as ordinary income for income tax
purposes. The Government Fund had dividends of $0.00217 per share or $176,234
which are characterized as ordinary income for income tax purposes. There were
no tax undistributed amounts as of December 31, 2002.
The tax components of dividends paid during the years ended December 31, 2002
and December 31, 2001, are:
<Table>
<Caption>
MEDICAL SMALL CAP
----------------------------- -----------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------ ------------- ------------ -------------
2002...................... $59,028 $75,306 $37,861 $ --
2001...................... $73,214 $ -- $ -- $ --
</Table>
31
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE INTERNET FUND
--------------------------------------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS ADVISOR CLASS A
SIX MONTHS SIX MONTHS FOR THE FOR THE
ENDED ENDED YEAR ENDED YEAR ENDED
JUNE 30, 2003 JUNE 30, 2003 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2002 2002
-------------- --------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value,
Beginning of Period.................. $ 16.69 $16.47 $ 21.80 $ 21.75
-------- ------ -------- -------
Income from Investment Operations:
Net investment income (loss)......... 0.00(7) (0.02)(6) (0.08)(6) (0.12)(6)
Net realized and unrealized gain
(loss) on investments.............. 4.47 4.33 (5.03) (5.16)
-------- ------ -------- -------
Total gain (loss) from investment
operations...................... 4.47 4.31 (5.11) (5.28)
-------- ------ -------- -------
Less Distributions:
From net investment income........... -- -- -- --
From net realized gains.............. -- -- -- --
-------- ------ -------- -------
Total distributions.............. -- -- -- --
-------- ------ -------- -------
Net Asset Value, End of Period......... $ 21.16 $20.78 $ 16.69 $ 16.47
======== ====== ======== =======
Total Return(5)........................ 26.78%(1) 26.17%(1) (23.44)% (24.28)%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's)...... $256,488 $4,037 $189,618 $ 507
Ratio of expenses to average net
assets:
Before expense reimbursement....... 2.35%(2) 2.60%(2) 2.42% 2.67%
After expense reimbursement........ 2.35%(2) 2.60%(2) 2.42% 2.67%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement....... 0.03%(2) (0.22)%(2) (0.41)% (0.66)%
After expense reimbursement........ 0.03%(2) (0.22)%(2) (0.41)% (0.66)%
Portfolio turnover rate................ N/A N/A N/A N/A
</Table>
- ------------------
(+) Commencement of operations.
(1) Not annualized.
(2) Annualized.
(3) Information presented relates to a share of capital stock outstanding for
the entire period.
(4) Rate listed represents the portfolio turnover rate from January 1, 2000
through April 28, 2000 (date on which Feeder Fund entered into a
master-feeder fund structure).
(5) The total return calculation does not reflect the 5.75% front end sales
charge on Advisor Class A shares.
(6) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(7) The amount listed is less than $0.005 per share.
See Notes to the Financial Statements.
32
<Table>
<Caption>
THE INTERNET FUND
- ---------------------------------------------------------------------------------------------------------------
ADVISOR CLASS A
INVESTOR CLASS APRIL 26, INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS
FOR THE 2001(+) FOR THE FOR THE FOR THE
YEAR ENDED THROUGH YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2001 2000 1999 1998
-------------- --------------- -------------- -------------- --------------
$ 24.12 $23.50 $ 49.73 $ 15.72 $ 5.31
-------- ------ -------- ---------- -------
(0.17) (0.12)(6) (0.76) (0.30) (0.08)
(2.15) (1.63) (24.85) 34.33 10.50
-------- ------ -------- ---------- -------
(2.32) (1.75) (25.61) 34.03 10.42
-------- ------ -------- ---------- -------
-- -- -- -- --
-- -- -- (0.02) (0.01)
-------- ------ -------- ---------- -------
-- -- -- (0.02) (0.01)
-------- ------ -------- ---------- -------
$ 21.80 $21.75 $ 24.12 $ 49.73 $ 15.72
======== ====== ======== ========== =======
(9.62)% (7.45)%(1) (51.50)% 216.50% 196.14%
$297,793 $ 975 $432,978 $1,163,097 $22,159
2.37% 2.62%(2) 2.06% 2.00% 3.08%
2.37% 2.62%(2) 2.00% 2.00% 3.08%
(0.61)% (0.86)%(2) (1.49)% (1.29)% (2.92)%
(0.61)% (0.86)%(2) (1.43)% (1.29)% (2.92)%
N/A N/A 21%(4) 89% 80%
</Table>
See Notes to the Financial Statements.
33
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE INTERNET
EMERGING GROWTH FUND
------------------------------------------------------------
SIX MONTHS
ENDED FOR THE FOR THE FOR THE
JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED
2003 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2002 2001 2000
------------ ------------ ------------ ------------
PER SHARE DATA(1)
Net Asset Value,
Beginning of Period.... $ 3.24 $ 4.30 $ 3.69 $10.00
------ ------ ------ ------
Income from Investment
Operations:
Net investment loss.... (0.01) (0.08) (0.03) (0.03)
Net realized and
unrealized gain
(loss) on
investments.......... 0.50 (0.98) 0.64 (6.28)
------ ------ ------ ------
Total gain (loss)
from investment
operations....... 0.49 (1.06) 0.61 (6.31)
------ ------ ------ ------
Less Distributions:
From net investment
income............... -- -- -- --
From net realized
gains................ -- -- -- --
------ ------ ------ ------
Total
distributions.... -- -- -- --
------ ------ ------ ------
Net Asset Value, End of
Period................. $ 3.73 $ 3.24 $ 4.30 $ 3.69
====== ====== ====== ======
Total Return............. 15.12%(3) (24.65)% 16.53% (63.10)%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's)................ $4,428 $3,338 $5,277 $4,378
Ratio of expenses to
average net assets:
Before expense
reimbursement...... 3.93%(4) 3.78% 4.17% 3.33%
After expense
reimbursement...... 2.74%(4) 2.74% 2.74% 2.00%
Ratio of net investment
loss to average net
assets:
Before expense
reimbursement...... (1.95)%(4) (3.03)% (2.09)% (1.76)%
After expense
reimbursement...... (0.76)%(4) (1.99)% (0.66)% (0.43)%
Portfolio turnover
rate................... N/A N/A N/A 17%(2)
</Table>
- ------------------
(1) Information presented relates to a share of capital stock outstanding for
the entire period.
(2) Rate listed represents the portfolio turnover rate from January 1, 2000
through April 28, 2000 (date on which Feeder Fund entered into a
master-feeder fund structure).
(3) Not annualized.
(4) Annualized.
See Notes to the Financial Statements.
34
(This page intentionally left blank)
35
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE PARADIGM FUND
--------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C
SIX MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED
JUNE 30, 2003 JUNE 30, 2003 JUNE 30, 2003
(UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- --------------- ---------------
PER SHARE DATA(1)
Net Asset Value,
Beginning of Period............................... $ 10.12 $10.07 $10.05
------- ------ ------
Income from Investment Operations:
Net investment income (loss)...................... 0.04(7) 0.02 (0.01)
Net realized and unrealized gain (loss) on
investments..................................... 2.06 2.07 2.06
------- ------ ------
Total gain (loss) from investment
operations................................... 2.10 2.09 2.05
------- ------ ------
Less Distributions:
From net investment income........................ -- -- --
From net realized gains........................... -- -- --
------- ------ ------
Total distributions........................... -- -- --
------- ------ ------
Net Asset Value, End of Period...................... $ 12.22 $12.16 $12.10
======= ====== ======
Total Return(6)..................................... 20.75%(4) 20.75%(4) 20.40%(4)
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's)................... $19,890 $9,925 $ 726
Ratio of expenses to average net assets:
Before expense reimbursement.................... 2.40%(5) 2.65%(5) 3.15%(5)
After expense reimbursement..................... 2.40%(5) 2.65%(5) 3.15%(5)
Ratio of net investment income (loss) to average net
assets:
Before expense reimbursement.................... 0.64%(5) 0.39%(5) (0.11)%(5)
After expense reimbursement..................... 0.64%(5) 0.39%(5) (0.11)%(5)
Portfolio turnover rate............................. N/A N/A N/A
</Table>
- ------------------
(+) Commencement of operations.
(1) Information presented relates to a share of capital stock outstanding for
the entire period.
(2) Rate listed represents the portfolio turnover rate from January 1, 2000
through April 28, 2000 (date on which Feeder Fund entered into a
master-feeder fund structure).
(3) The amount is less than $0.005 per share.
(4) Not annualized.
(5) Annualized.
(6) The total return calculation does not reflect the 5.75% front end sales
charge on Advisor Class A shares.
(7) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
See Notes to the Financial Statements.
36
<Table>
<Caption>
THE PARADIGM FUND
-------------------------------------------------------------------------------------------------------------
ADVISOR CLASS A
INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C INVESTOR CLASS APRIL 26, 2001 INVESTOR CLASS
FOR THE FOR THE JUNE 28, 2002(+) FOR THE (+) FOR THE
YEAR ENDED YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2002 2002 2001 2001 2000
-------------- --------------- ---------------- -------------- ---------------- --------------
$10.61 $10.58 $10.64 $10.40 $10.42 $10.00
------ ------ ------ ------ ------ ------
(0.14) (0.17) (0.11) (0.13) (0.10)(7) (0.00)(3)
(0.35) (0.34) (0.48) 0.34 0.26 0.40
------ ------ ------ ------ ------ ------
(0.49) (0.51) (0.59) 0.21 0.16 0.40
------ ------ ------ ------ ------ ------
-- -- -- -- -- --
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
$10.12 $10.07 $10.05 $10.61 $10.58 $10.40
====== ====== ====== ====== ====== ======
(4.62)% (4.82)% (5.55)%(4) 2.02% 1.54%(4) 4.00%
$5,044 $4,943 $ 519 $4,817 $4,091 $3,803
2.97% 3.22% 3.72%(5) 3.47% 3.72%(5) 4.96%
2.74% 2.99% 3.49%(5) 2.74% 2.99%(5) 2.00%
(1.61)% (1.86)% (2.36)%(5) (1.91)% (2.16)%(5) (3.02)%
(1.38)% (1.63)% (2.13)%(5) (1.18)% (1.43)%(5) (0.06)%
N/A N/A N/A N/A N/A 5%(2)
</Table>
See Notes to the Financial Statements.
37
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE MEDICAL FUND
----------------------------------------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A
SIX MONTHS SIX MONTHS INVESTOR CLASS ADVISOR CLASS A
ENDED ENDED FOR THE FOR THE
JUNE 30, JUNE 30, YEAR ENDED YEAR ENDED
2003 2003 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2002 2002
-------------- --------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value, Beginning of
Period......................... $ 12.72 $12.61 $ 18.06 $18.01
------- ------ ------- ------
Income from Investment
Operations:
Net investment loss............ (0.08) (0.10)(6) (0.21) (0.24)
Net realized and unrealized
gain (loss) on investments... 2.37 2.35 (5.05) (5.08)
------- ------ ------- ------
Total gain (loss) from
investment operations.... 2.29 2.25 (5.26) (5.32)
------- ------ ------- ------
Less Distributions:
From net investment income..... -- -- -- --
From net realized gains........ -- -- (0.08) (0.08)
------- ------ ------- ------
Total distributions........ -- -- (0.08) (0.08)
------- ------ ------- ------
Net Asset Value, End of Period... $ 15.01 $14.86 $ 12.72 $12.61
======= ====== ======= ======
Total Return(5).................. 18.00%(1) 17.84%(1) (29.14)% (29.56)%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's)........................ $25,982 $ 724 $22,604 $ 794
Ratio of expenses to average net
assets:
Before expense
reimbursement.............. 2.46%(2) 2.71%(2) 2.55% 2.80%
After expense
reimbursement.............. 2.46%(2) 2.71%(2) 2.55% 2.80%
Ratio of net investment loss to
average net assets:
Before expense
reimbursement.............. (1.22)%(2) (1.47)%(2) (1.49)% (1.74)%
After expense
reimbursement.............. (1.22)%(2) (1.47)%(2) (1.49)% (1.74)%
Portfolio turnover rate.......... N/A N/A N/A N/A
</Table>
- ------------------
(+) Commencement of operations.
(1) Not annualized.
(2) Annualized.
(3) Information presented relates to a share of capital stock outstanding for
the entire period.
(4) Rate listed represents the portfolio turnover rate from January 1, 2000
through April 28, 2000 (date on which Feeder Fund entered into a
master-feeder fund structure).
(5) The total return calculation does not reflect the 5.75% front end sales
charge on Advisor Class A shares.
(6) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
See Notes to the Financial Statements.
38
<Table>
<Caption>
THE MEDICAL FUND
--------------------------------------------------------------------------------
INVESTOR CLASS
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS SEPTEMBER 30,
FOR THE APRIL 26, 2001(+) FOR THE 1999(+)
YEAR ENDED THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2001 2000 1999
-------------- ----------------- -------------- --------------
$ 20.98 $18.24 $ 13.35 $10.00
------- ------ ------- ------
(0.25) (0.17)(6) (0.15) (0.02)
(2.64) (0.03) 7.78 3.37
------- ------ ------- ------
(2.89) (0.20) 7.63 3.35
------- ------ ------- ------
-- -- -- --
(0.03) (0.03) -- --
------- ------ ------- ------
(0.03) (0.03) -- --
------- ------ ------- ------
$ 18.06 $18.01 $ 20.98 $13.35
======= ====== ======= ======
(13.77)% (1.09)%(1) 57.15% 33.50%(1)
$40,416 $1,203 $63,314 $6,944
2.28% 2.53%(2) 2.21% 5.99%(2)
2.28% 2.53%(2) 2.00% 2.00%(2)
(1.17)% (1.42)%(2) (1.24)% (5.24)%(2)
(1.17)% (1.42)%(2) (1.03)% (1.25)%(2)
N/A N/A 1%(4) 1%
</Table>
See Notes to the Financial Statements.
39
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES FUND
--------------------------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A
SIX MONTHS SIX MONTHS INVESTOR CLASS ADVISOR CLASS A
ENDED ENDED FOR THE FOR THE
JUNE 30, JUNE 30, YEAR ENDED YEAR ENDED
2003 2003 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2002 2002
-------------- --------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value,
Beginning of Period............ $ 10.04 $10.03 $ 14.50 $ 14.50
------- ------ -------- --------
Income from Investment
Operations:
Net investment income (loss)... 0.14(6) 0.12(6) (0.18)(6) (0.20)(6)
Net realized and unrealized
gain (loss) on investments... 2.47 2.47 (4.21) (4.20)
------- ------ -------- --------
Total gain (loss) from
investment operations.... 2.61 2.59 (4.39) (4.40)
------- ------ -------- --------
Less Distributions:
From net investment income..... -- -- -- --
From net realized gains........ -- -- (0.07) (0.07)
------- ------ -------- --------
Total distributions........ -- -- (0.07) (0.07)
------- ------ -------- --------
Net Asset Value, End of Period... $ 12.65 $12.62 $ 10.04 $ 10.03
======= ====== ======== ========
Total Return(5).................. 26.00%(1) 25.82%(1) (30.28)% (30.35)%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's)........................ $31,015 $1,134 $ 3,313 $ 172
Ratio of expenses to average net
assets:
Before expense
reimbursement.............. 2.28%(2) 2.53%(2) 2.95% 3.20%
After expense
reimbursement.............. 2.28%(2) 2.53%(2) 2.74% 2.99%
Ratio of net investment income
(loss) to average net assets:
Before expense
reimbursement.............. 2.29%(2) 2.04%(2) (1.59)% (1.84)%
After expense
reimbursement.............. 2.29%(2) 2.04%(2) (1.38)% (1.63)%
Portfolio turnover rate.......... N/A N/A N/A N/A
</Table>
- ------------------
(+) Commencement of operations.
(1) Not annualized.
(2) Annualized.
(3) Information presented relates to a share of capital stock outstanding for
the entire period.
(4) Rate listed represents the portfolio turnover rate from January 1, 2000
through April 28, 2000 (date on which Feeder Fund entered into a
master-feeder fund structure).
(5) The total return calculation does not reflect the 5.75% front end sales
charge on Advisor Class A shares.
(6) Net investment income per share represents net investment income divided by
the average shares outstanding throughout the period.
(7) The amount listed is less than $0.005 per share.
See Notes to the Financial Statements.
40
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES FUND
---------------------------------------------------------
INVESTOR CLASS
INVESTOR CLASS MARCH 20,
FOR THE 2000(+)
YEAR ENDED ADVISOR CLASS A THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2001(+) 2000
-------------- --------------- --------------
$11.10 $14.50 $10.00
------ ------ ------
(0.19)(6) -- (0.00)(7)
3.59 -- 1.10
------ ------ ------
3.40 -- 1.10
------ ------ ------
-- -- --
-- -- --
------ ------ ------
-- -- --
------ ------ ------
$14.50 $14.50 $11.10
====== ====== ======
30.63% 0.00%(1) 11.00%(1)
$9,266 $ 1 $ 517
3.73% N/A 24.50%(2)
2.74% N/A 2.00%(2)
(2.37)% N/A (22.59)%(2)
(1.38)% N/A (0.09)%(2)
N/A N/A 8%(4)
</Table>
See Notes to the Financial Statements.
41
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE KINETICS GOVERNMENT MONEY MARKET FUND
---------------------------------------------------------
SIX MONTHS FEBRUARY 3,
ENDED FOR THE FOR THE 2000(+)
JUNE 30, YEAR ENDED YEAR ENDED THROUGH
2003 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2002 2001 2000
------------ ------------ ------------ ------------
PER SHARE DATA(3)
Net Asset Value, Beginning of
Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- ------- -------
Income from Investment
Operations:
Net investment income...... -- 0.00(4) 0.02 0.04
Net realized and unrealized
gain (loss) on
investments.............. -- -- -- --
------- -------- ------- -------
Total gain from
investment
operations........... -- 0.00(4) 0.02 0.04
------- -------- ------- -------
Less Distributions:
From net investment
income................... -- (0.00)(4) (0.02) (0.04)
From net realized gains.... -- -- -- --
------- -------- ------- -------
Total distributions.... -- -- (0.02) (0.04)
------- -------- ------- -------
Net Asset Value, End of
Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======= =======
Total Return................. 0.00%(1) 0.22% 2.36% 4.20%(1)
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's).................... $65,302 $128,657 $94,886 $21,532
Ratio of expenses to average
net assets:
Before expense
reimbursement.......... 1.19%(2) 1.29% 1.35% 1.43%(2)
After expense
reimbursement.......... 1.02%(2) 1.23% 1.24% 1.25%(2)
Ratio of net investment
income (loss) to average
net assets:
Before expense
reimbursement.......... (0.17)%(2) 0.13% 2.12% 4.61%(2)
After expense
reimbursement.......... 0.00%(2) 0.19% 2.23% 4.79%(2)
Portfolio turnover rate...... N/A N/A N/A N/A
</Table>
- ------------------
(+) Commencement of operations.
(1) Not annualized.
(2) Annualized.
(3) Information presented relates to a share of capital stock outstanding for
the entire period.
(4) The amount listed is less than $0.005 per share.
See Notes to the Financial Statements.
42
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 81.11%+ SHARES VALUE
- --------------------------------------------------------------------
ACCESS/BROADBAND -- 2.69%+
PrimaCom AG ADR*........................ 580,000 $ 197,200
UnitedGlobalCom, Inc. -- Class A*(2).... 1,140,000 5,893,800
United Pan-Europe Communications N.V. --
Class A ADR*(2)....................... 1,400,000 140,000
XM Satellite Radio Holdings, Inc. --
Class A*(2)........................... 72,000 795,600
------------
7,026,600
------------
BUSINESS SERVICES -- 17.51%+
eSPEED, Inc. -- Class A*................ 1,200,000 23,712,000
Kroll, Inc.*............................ 775,000 20,971,500
Ritchie Bros. Auctioneers
Incorporated*......................... 26,000 1,001,260
------------
45,684,760
------------
COMPUTER HARDWARE/SOFTWARE -- 3.80%+
Comdisco Holding Company, Inc.*......... 96,800 9,583,200
Leapfrog Enterprises, Inc.*(2).......... 10,000 318,100
Psion PLC*.............................. 10,000 10,767
------------
9,912,067
------------
COMPUTER SERVICES -- 2.64%+
CACI International, Inc. -- Class A*.... 150,000 5,145,000
Fidelity National Information Solutions,
Inc.*(1)(2)........................... 67,000 1,747,360
------------
6,892,360
------------
E-BUSINESS SERVICES -- 4.18%+
First Advantage Corporation -- Class
A*(2)................................. 20,000 333,000
Harris Interactive, Inc.*............... 1,440,000 9,489,600
NetRatings, Inc.*....................... 120,000 1,096,800
------------
10,919,400
------------
E-COMMERCE -- 11.59%+
CheckFree Corporation*(2)............... 644,900 17,954,016
Getty Images, Inc.*(1).................. 50,900 2,102,170
InterActiveCorp*(2)..................... 80,000 3,165,600
LendingTree, Inc.*(2)................... 150,000 3,672,000
LookSmart, Ltd.*........................ 50,000 141,500
MarketWatch.com, Inc.*(2)............... 244,000 2,039,840
</Table>
See Notes to the Financial Statements.
43
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
E-COMMERCE -- (CONTINUED)
WebMD Corporation*(1)(2)................ 109,000 $ 1,180,470
------------
30,255,596
------------
HOLDING COMPANY -- 7.20%+
Groupe Bruxelles Lambert S.A............ 210,000 9,501,608
Leucadia National Corporation*.......... 250,000 9,280,000
------------
18,781,608
------------
INFRASTRUCTURE -- 5.01%+
Commonwealth Telephone Enterprises,
Inc.*(2).............................. 180,000 7,914,600
Commonwealth Telephone Enterprises,
Inc. -- Class B*...................... 14,000 644,000
Lynch Interactive Corporation*.......... 185,790 4,491,473
Sunshine PCS Corporation -- Class A*.... 149,890 37,473
------------
13,087,546
------------
INTERNET SEARCH ENGINES -- 14.20%+
Netease.com, Inc. ADR*.................. 270,000 9,844,200
ProQuest Company*(2).................... 160,000 4,128,000
SINA Corp*(2)........................... 530,000 10,774,900
Sohu.com, Inc.*(2)...................... 360,000 12,297,600
------------
37,044,700
------------
INTERNET TECHNOLOGY INFRASTRUCTURE --
8.15%+
Level 3 Communications, Inc.*(2)........ 3,205,000 21,281,200
------------
INTERNET TECHNOLOGY/SOFTWARE -- 2.56%+
BARRA, Inc.*(2)......................... 180,000 6,426,000
Lionbridge Technologies, Inc.*(2)....... 50,000 254,500
------------
6,680,500
------------
MEDIA CONTENT -- 0.51%+
The Washington Post Company -- Class
B..................................... 1,800 1,319,220
------------
TITLE INSURANCE -- 1.06%+
Fidelity National Financial, Inc. ...... 90,000 2,768,400
------------
</Table>
See Notes to the Financial Statements.
44
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
SECURITIES EXCHANGES -- 0.01%+
Nasdaq Stock Market Inc.*............... 3,000 $ 24,150
------------
TOTAL COMMON STOCKS
(cost $186,859,728)................... 211,678,107
------------
PREFERRED STOCKS -- 2.38%+
- --------------------------------------------------------------------
E-COMMERCE -- 2.38%+
InterActiveCorp, CLB, 1.990%,
2/4/2022.............................. 108,104 6,215,980
------------
TOTAL PREFERRED STOCKS
(cost $5,138,679)..................... 6,215,980
------------
PRINCIPAL
CORPORATE BONDS -- 1.48%+ AMOUNT
- --------------------------------------------------------------------
ACCESS/BROADBAND -- 0.52%+
UnitedGlobalCom, Inc., CLB, 10.750%,
2/15/2008*(+)......................... $ 2,000,000 1,360,000
INTERNET TECHNOLOGY
INFRASTRUCTURE -- 0.96%+
Level 3 Communications, Inc., CLB,
0.000%, 3/15/2010*(+)................. 3,200,000 2,512,000
------------
TOTAL CORPORATE BONDS
(cost $3,644,545)..................... 3,872,000
------------
CORPORATE BONDS -- CONVERTIBLE -- 7.40%+
- --------------------------------------------------------------------
INTERNET TECHNOLOGY INFRASTRUCTURE --
1.30%+
Level 3 Communications, Inc., CLB,
6.000%, 3/15/2010*(2)................. 4,600,000 3,381,000
------------
VENTURE CAPITAL -- 6.10%+
Safeguard Scientifics, Inc., CLB,
5.000%, 6/15/2006*.................... 20,300,000 15,935,500
------------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $18,293,226).................... 19,316,500
------------
</Table>
See Notes to the Financial Statements.
45
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
RIGHTS -- 1.12%+ SHARES VALUE
- --------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 1.12%+
Comdisco Holding Company, Inc.#......... 9,300,049 $ 2,929,515
------------
TOTAL RIGHTS (cost $1,589,883).......... 2,929,515
------------
<Caption>
CALL OPTIONS PURCHASED --
0.15%+ CONTRACTS
- --------------------------------------------------------------------
Netease.com, Inc.
Expiring September 2003 at $35.00..... 180 106,200
SINA Corp
Expiring September 2003 at $17.50..... 360 165,600
Sohu.com, Inc.
Expiring September 2003 at $30.00..... 180 113,400
------------
TOTAL CALL OPTIONS
(cost $303,480)....................... 385,200
------------
PUT OPTIONS PURCHASED -- 0.03%+
- --------------------------------------------------------------------
eBAY, Inc.
Expiring January 2004 at $30.00....... 50 1,125
Expiring January 2005 at $40.00....... 25 2,875
Expiring January 2005 at $70.00....... 25 14,250
------------
18,250
------------
Electronic Arts, Inc.
Expiring January 2005 at $50.00.... 50 15,875
Expiring January 2004 at $55.00.... 225 31,500
------------
47,375
------------
TOTAL PUT OPTIONS
(cost $190,825)....................... 65,625
------------
PRINCIPAL
AMOUNT
SHORT-TERM INVESTMENTS -- 4.01%+ OR SHARES
- --------------------------------------------------------------------
DISCOUNT NOTES -- 4.01%+
Federal Home Loan Bank Discount Note,(1)
0.4000%, 7/1/2003..................... $10,454,000 10,454,000
------------
</Table>
See Notes to the Financial Statements.
46
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- --------------------------------------------------------------------
INVESTMENT COMPANIES -- 0.00%+
First American Prime Obligations Fund --
Class I............................... 623 $ 623
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $10,454,623).................... 10,454,623
------------
<Caption>
INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES
LENDING -- 20.80%+
- --------------------------------------------------------------------
COMMERCIAL PAPER -- 0.99%+
UBS Finance Commercial Paper, 1.310%,
7/1/2003 (cost $2,581,279)............ $ 2,581,279 2,581,279
------------
MONEY MARKET FUNDS -- 1.01%+
AIM Liquid Assets
Portfolio -- Institutional Class...... 860,458 860,458
Merrill Lynch Premier Institutional
Fund.................................. 1,781,006 1,781,006
------------
TOTAL MONEY MARKET FUNDS
(cost $2,641,464)..................... 2,641,464
------------
REPURCHASE AGREEMENTS -- 18.80%+
CS First Boston Repurchase Agreement,
1.300%, 7/1/2003
(cost $14,627,780)(3)................. 14,627,780 14,627,780
------------
CS First Boston Repurchase Agreement,
1.435%, 7/1/2003
(cost $34,418,305)(3)................. 34,418,305 34,418,305
------------
</Table>
See Notes to the Financial Statements.
47
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
VALUE
- --------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(cost $49,046,085).................... $ 49,046,085
------------
TOTAL INVESTMENTS -- TOTAL INVESTMENTS
PURCHASED WITH CASH PROCEEDS FROM
SECURITIES LENDING
(cost $54,268,828).................... 54,268,828
------------
TOTAL INVESTMENTS -- 118.48%+
(COST $280,743,817)................... $309,186,378
============
</Table>
- ------------------
* -- Non-income producing security.
(+) -- Security has a stepped rate. The rate listed is as of June 30, 2003.
+ -- Calculated as a percentage of net assets.
# -- Contingent value right (contingent upon profitability of company).
ADR -- American Depository Receipts.
(1) -- All or a portion of the shares have been committed as collateral for
written option contracts.
(2) -- This security or a portion of this security was out on loan at June 30,
2003. Total loaned securities had a market value of $53,376,859 at June
30, 2003.
(3) -- Collateralized by U.S. Government or U.S. Government Agency securities,
U.S. Government Agency mortgage-backed securities, certificates of
deposit or banker's acceptances.
See Notes to the Financial Statements.
48
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 76.27%+ SHARES VALUE
- -------------------------------------------------------------------------
ACCESS/BROADBAND -- 2.52%+
UTStarcom, Inc.*(2)........................... 2,600 $ 92,482
XM Satellite Radio Holdings, Inc. -- Class
A*(2)....................................... 1,700 18,785
----------
111,267
----------
BUSINESS SERVICES -- 16.46%+
eSPEED, Inc. -- Class A*...................... 10,000 197,600
FactSet Research Systems Inc. ................ 400 17,620
Interactive Data Corporation*(2).............. 13,000 219,700
John H. Harland Company....................... 1,000 26,160
Register.com, Inc.*........................... 14,000 82,040
Valassis Communications, Inc.*................ 2,300 59,156
Websense, Inc.*(2)............................ 8,000 125,280
----------
727,556
----------
COMPUTER HARDWARE/SOFTWARE -- 13.89%+
Comdisco Holding Company, Inc.*............... 6,200 613,800
----------
COMPUTER SERVICES -- 4.92%+
Fidelity National Information Solutions,
Inc.*....................................... 4,572 119,238
SI International, Inc.*....................... 7,500 98,250
----------
217,488
----------
E-BUSINESS SERVICES -- 1.39%+
NetRatings, Inc.*............................. 6,700 61,238
----------
INTERNET SEARCH ENGINES -- 6.22%+
Netease.com, Inc. ADR*........................ 2,500 91,150
SINA Corp*(2)................................. 4,500 91,485
Sohu.com, Inc.*............................... 2,700 92,232
----------
274,867
----------
HOLDING COMPANY -- 5.19%+
Groupe Bruxelles Lambert S.A.................. 1,200 54,295
Naspers Limited ADR*.......................... 5,047 175,035
----------
229,330
----------
</Table>
See Notes to the Financial Statements.
49
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
INFRASTRUCTURE -- 8.52%+
Global Light Telecommunications, Inc.*........ 34,000 $ 7
IDT Corporation*.............................. 5,300 94,870
IDT Corporation -- Class B*(2)................ 5,300 93,280
ITXC Corp.*(2)................................ 2,000 5,220
Lynch Interactive Corporation*................ 6,100 147,467
RADWARE, Ltd.*................................ 2,000 34,260
Sunshine PCS Corporation -- Class A*.......... 6,000 1,500
----------
376,604
----------
INTERNET TECHNOLOGY/HARDWARE -- 1.25%+
CompuCom Systems, Inc.*....................... 12,200 55,144
----------
INTERNET TECHNOLOGY INFRASTRUCTURE -- 8.71%+
Level 3 Communications, Inc.*................. 58,000 385,120
----------
INTERNET TECHNOLOGY/SOFTWARE -- 5.59%+
ActivCard Corp.*.............................. 7,500 70,500
BARRA, Inc.*.................................. 2,000 71,400
Gemstar -- TV Guide International, Inc.*...... 5,000 25,450
OneSource Information Services, Inc.*......... 300 2,238
ProQuest Company*(2).......................... 3,000 77,400
----------
246,988
----------
MANUFACTURING -- 0.01%+
Morgan Group Holding Company*................. 6,100 488
----------
MEDIA CONTENT -- 0.12%+
Ascent Media Group, Inc.*(2).................. 4,400 5,456
----------
TELECOMMUNICATIONS -- 1.48%+
Warwick Valley Telephone Company.............. 800 65,632
----------
TOTAL COMMON STOCKS
(cost $4,195,748)........................... 3,370,978
----------
</Table>
See Notes to the Financial Statements.
50
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
CORPORATE BONDS -- 1.36%+ AMOUNT VALUE
- -------------------------------------------------------------------------
INFRASTRUCTURE -- 1.36%+
Corning Incorporated, 6.000%, 8/15/2003....... $ 60,000 $ 60,075
----------
TOTAL CORPORATE BONDS
(cost $60,000).............................. 60,075
----------
<Caption>
CORPORATE BONDS -- CONVERTIBLE --
4.86%+
- -------------------------------------------------------------------------
FINANCE -- 2.20%+
E*TRADE Group, Inc., CLB, 6.000%, 2/1/2007.... 100,000 97,000
----------
INFRASTRUCTURE -- 2.66%+
Conexant Systems, Inc., CLB, 4.000%,
2/1/2007.................................... 150,000 117,750
----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $159,319)............................. 214,750
----------
<Caption>
RIGHTS -- 3.66%+ SHARES
- -------------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 3.66%+
Comdisco Holding Company, Inc.#............... 514,000 161,910
----------
TOTAL RIGHTS (cost $200,423).................. 161,910
----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 11.91%+ AMOUNT
- -------------------------------------------------------------------------
DISCOUNT NOTES -- 6.42%+
Federal Home Loan Bank Discount Note, 0.4000%,
7/1/2003.................................... $284,000 284,000
----------
VARIABLE RATE DEMAND NOTES** -- 5.49%+
American Family, 0.8510%...................... 74,549 74,549
Wisconsin Corporate Central Credit Union,
0.6975%..................................... 70,843 70,843
U.S. Bank, N.A., 0.7775%...................... 97,234 97,234
----------
242,626
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $526,626)............................. 526,626
----------
</Table>
See Notes to the Financial Statements.
51
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
INVESTMENTS PURCHASED WITH CASH PRINCIPAL
PROCEEDS FROM SECURITIES LENDING -- AMOUNT
10.66%+ OR SHARES VALUE
- -------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.51%+
UBS Finance Commercial Paper, 1.310%, 7/1/2003
(cost $22,398).............................. $ 22,398 $ 22,398
----------
MONEY MARKET FUNDS -- 0.52%+
AIM Liquid Assets Portfolio -- Institutional
Class....................................... 7,466 7,466
Merrill Lynch Premier Institutional Fund...... 15,454 15,454
----------
TOTAL MONEY MARKET FUNDS
(cost $22,920).............................. 22,920
----------
REPURCHASE AGREEMENTS -- 9.63%+
CS First Boston Repurchase Agreement, 1.300%,
7/1/2003 (Cost $126,928)(3)................. 126,928 126,928
CS First Boston Repurchase Agreement, 1.435%,
7/1/2003 (Cost $298,654)(3)................. 298,654 298,654
----------
TOTAL REPURCHASE AGREEMENTS
(cost $425,582)............................. 425,582
----------
TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS
FROM SECURITIES LENDING
(cost $470,900)............................. 470,900
----------
TOTAL INVESTMENTS -- 108.72%+
(COST $5,613,016)........................... $4,805,239
==========
</Table>
- ------------------
* -- 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 June 30, 2003.
# -- Contingent value right (contingent upon profitability of company).
ADR -- American Depository Receipts.
+ -- Calculated as a percentage of net assets.
(2) -- This security or a portion of this security was out on loan at June 30,
2003. Total loaned securities had a market value of $459,744 at June 30,
2003.
(3) -- Collateralized by U.S. Government or U.S. Government Agency securities,
U.S. Government Agency mortgage-backed securities, certificates of
deposit or banker's acceptances.
See Notes to the Financial Statements.
52
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 77.06%+ SHARES VALUE
- ------------------------------------------------------------------------
AUTO INSURANCE -- 0.86%+
The Progressive Corporation................ 3,600 $ 263,160
-----------
BEVERAGES -- 0.01%+
Taittinger S.A............................. 25 3,302
-----------
BUSINESS SERVICES -- 0.09%+
Moody's Corporation........................ 500 26,355
-----------
DIVERSIFIED OPERATIONS -- 0.08%+
Brascan Corporation -- Class A............. 1,000 24,560
-----------
ENERGY-EXPLORATION & PRODUCTION -- 1.91%+
CNOOC Limited ADR.......................... 6,000 178,200
EnCana Corp................................ 1,800 69,066
Suncor Energy, Inc. ....................... 18,000 337,500
-----------
584,766
-----------
ENERGY-INTEGRATED -- 7.27%+
China Petroleum and Chemical Corporation
ADR*..................................... 32,000 772,800
PetroChina Company Limited ADR(2).......... 48,000 1,449,600
-----------
2,222,400
-----------
ENERGY-PIPELINE -- 9.41%+
El Paso Corporation(2)..................... 180,000 1,454,400
The Williams Companies, Inc. .............. 180,000 1,422,000
-----------
2,876,400
-----------
FINANCE -- 2.66%+
Deutsche Boerse AG......................... 400 21,084
Euronext NV................................ 9,600 237,023
H&R Block, Inc. ........................... 4,000 173,000
London Stock Exchange PLC.................. 8,000 44,884
M&T Bank Corporation....................... 4,000 336,880
-----------
812,871
-----------
HOLDING COMPANIES -- 10.01%+
Berkshire Hathaway Inc. -- Class B*........ 540 1,312,200
Groupe Bruxelles Lambert S.A............... 12,000 542,949
Leucadia National Corporation*............. 18,000 668,160
Pargesa Holding AG -- Class B.............. 48 97,843
Wesco Financial Corporation................ 1,400 436,800
-----------
3,057,952
-----------
</Table>
See Notes to the Financial Statements.
53
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
HOSPITALITY -- 0.02%+
Societe du Lourve.......................... 100 $ 6,132
-----------
INFRASTRUCTURE -- 3.32%+
China Mobile Limited ADR................... 24,000 282,480
China Telecom Corporation Limited ADR*..... 20,000 454,800
Chian Unicom Limited ADR................... 40,000 277,200
-----------
1,014,480
-----------
INTERNET TECHNOLOGY INFRASTRUCTURE --1.83%+
Level 3 Communications, Inc.*(2)........... 84,000 557,760
-----------
MEDIA CONTENT -- 2.86%+
Dow Jones & Company, Inc. ................. 100 4,303
Meredith Corporation....................... 3,000 132,000
Pearson PLC ADR............................ 1,175 11,280
The E.W. Scripps Company -- Class A........ 5,000 443,600
The New York Times Company -- Class A...... 600 27,300
The Walt Disney Company.................... 1,850 36,538
The Washington Post Company -- Class B..... 300 219,870
-----------
874,891
-----------
MINING -- 5.31%+
Newmont Mining Corporation................. 50,000 1,623,000
-----------
PROPERTY/CASUALTY INSURANCE-DIVERSIFIED --
7.33%+
Alleghany Corporation*..................... 1,800 343,800
White Mountains Insurance Group, Ltd....... 4,800 1,896,000
-----------
2,239,800
-----------
PUBLISHING -- 0.86%+
John Wiley & Sons, Inc. -- Class B......... 10,000 262,500
-----------
REAL ESTATE DEVELOPMENT -- 0.18%+
Texas Pacific Land Trust................... 1,200 56,040
-----------
RE-INSURANCE -- 5.58%+
Montpelier Re Holdings, Ltd.*.............. 54,000 1,706,400
-----------
SECURITIES EXCHANGES -- 0.05%+
The Chicago Mercantile Exchange............ 200 13,926
-----------
SPECIALTY INSURANCE -- 1.01%+
Markel Corporation*(2)..................... 1,200 307,200
-----------
</Table>
See Notes to the Financial Statements.
54
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
TITLE INSURANCE -- 2.26%+
Fidelity National Financial, Inc.(2)....... 22,500 $ 692,100
-----------
UTILITIES-DIVERSIFIED -- 6.40%+
CenterPoint Energy, Inc. .................. 240,000 1,956,000
-----------
UTILITIES-ELECTRIC -- 7.75%+
Edison International*...................... 36,000 591,480
PG&E Corporation*.......................... 72,000 1,522,800
Texas Genco Holdings, Inc. ................ 1,200 27,900
TXU Corp................................... 10,000 224,500
-----------
2,366,680
-----------
TOTAL COMMON STOCKS (cost $20,043,785)..... 23,548,675
-----------
<Caption>
PREFERRED STOCKS -- 0.81%+
- ------------------------------------------------------------------------
ENERGY-PIPELINE -- 0.16%+
The Williams Companies, Inc., Conv, 9.000%,
2/16/2005................................ 4,000 49,400
-----------
UTILITES-ELECTRIC -- 0.65%+
Edison International, CLB, 8.600%,
10/29/2029*.............................. 400 11,440
Pacific Gas and Electric Company -- Series
B*....................................... 600 13,794
Pacific Gas and Electric Company -- Series
D, CLB, 5.000%, 07/14/2003*.............. 1,600 35,040
Pacific Gas and Electric Company -- Series
E, CLB, 5.000%, 07/14/2003*.............. 800 17,624
Pacific Gas and Electric Company -- Series
G, CLB, 4.800%, 7/14/2003*............... 1,200 26,160
Pacific Gas and Electric Company -- Series
H, CLB, 4.500%, 07/14/2003*.............. 1,800 39,600
Pacific Gas and Electric Company -- Series
I, CLB, 4.360%, 07/14/2003*.............. 2,200 48,840
Pacific Gas and Electric Company -- Series
U, CLB, 7.040%, 7/14/2003*............... 200 5,820
-----------
198,318
-----------
TOTAL PREFERRED STOCKS (cost $166,644)..... 247,718
-----------
</Table>
See Notes to the Financial Statements.
55
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
CORPORATE BONDS -- 5.22%+ AMOUNT VALUE
- ------------------------------------------------------------------------
FINANCE -- 2.14%+
The FINOVA Group, Inc., 7.500%,
11/15/2009............................... $1,500,000 $ 652,500
INTERNET TECHNOLOGY
INFRASTRUCTURE -- 3.08%+
Level 3 Communications, Inc., CLB, 0.000%,
3/15/2010*(+)............................ 1,200,000 942,000
-----------
TOTAL CORPORATE BONDS (cost $1,375,449).... 1,594,500
-----------
<Caption>
CORPORATE BONDS -- CONVERTIBLE --
1.19%+
- ------------------------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 1.19%+
Trizec Hahn Corporation, CLB, 3.000%,
1/29/2021................................ 600,000 364,500
-----------
TOTAL CORPORATE BONDS -- CONVERTIBLE (cost
$402,141)................................ 364,500
-----------
<Caption>
PUT OPTIONS PURCHASED -- 0.08%+ CONTRACTS
- ------------------------------------------------------------------------
The Kroger Co.
Expiring January 2005 at $10.00.......... 40 2,000
Expiring January 2006 at $10.00.......... 30 2,700
Expiring January 2005 at $15.00.......... 10 1,800
Expiring January 2006 at $12.50.......... 80 12,400
Expiring January 2006 at $20.00.......... 10 5,100
-----------
TOTAL PUT OPTIONS PURCHASED (cost
$27,433)................................. 24,000
-----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 14.56%+ AMOUNT
- ------------------------------------------------------------------------
DISCOUNT NOTES -- 14.56%+
Federal Home Loan Bank Discount Note
0.4000%, 07/01/2003(1)................... $4,450,000 4,450,000
-----------
VARIABLE RATE DEMAND NOTES** -- 0.00%+
U.S. Bank, N.A., 0.7775%................... 1,033 1,033
-----------
TOTAL SHORT-TERM INVESTMENTS (cost
$4,451,033).............................. 4,451,033
-----------
</Table>
See Notes to the Financial Statements.
56
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
INVESTMENTS PURCHASED WITH CASH PRINCIPAL
PROCEEDS FROM SECURITIES AMOUNT
LENDING -- 4.56%+ OR SHARES VALUE
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.22%+
UBS Finance Commercial Paper, 1.310%,
07/01/2003 (cost $66,229)................ $ 66,229 $ 66,229
-----------
MONEY MARKET FUNDS -- 0.22%+
AIM Liquid Assets
Portfolio -- Institutional Class......... 22,077 22,077
Merrill Lynch Premier Institutional Fund... 45,696 45,696
-----------
TOTAL MONEY MARKET FUNDS (cost $67,773).... 67,773
-----------
REPURCHASE AGREEMENTS -- 4.12%+
CS First Boston Repurchase Agreement,
1.300%, 7/1/2003 (cost $375,312)(3)...... 375,312 375,312
CS First Boston Repurchase Agreement,
1.435%, 7/1/2003 (cost $883,086)(3)...... 883,086 883,086
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $1,258,398)........................ 1,258,398
-----------
TOTAL INVESTMENTS PURCHASED WITH CASH
PROCEEDS FROM SECURITIES
LENDING (cost $1,392,400)................ 1,392,400
-----------
TOTAL INVESTMENTS -- 103.48%+
(COST $27,858,885)....................... $31,622,826
===========
</Table>
- ------------------
* -- 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 June 30, 2003.
(+) -- Security has a stepped rate. The rate listed is as of June 30, 2003.
ADR -- American Depository Receipts.
+ -- Calculated as a percentage of Net Assets.
(1) -- All or a portion of the shares have been committed as collateral for
written option contracts.
(2) -- This security or a portion of this security was out on loan at June 30,
2003. Total loaned securities had a market value of $1,329,856 at June
30, 2003.
(3) -- Collateralized by U.S. Government or U.S. Government Agency securities,
U.S. Government Agency mortgage-backed securities, certificates of
deposit or banker's acceptances.
See Notes to the Financial Statements.
57
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 75.19%+ SHARES VALUE
- ----------------------------------------------------------------------
AGRICULTURAL OPERATIONS -- 0.40%+
Monsanto Company(2)......................... 4,915 $ 106,361
-----------
BIOMEDICAL -- 32.56%+
Amgen, Inc.*................................ 9,800 651,112
Antigenics, Inc.*(2)........................ 892 10,276
AVAX Technologies, Inc.*.................... 50,000 12,000
Biogen, Inc.*............................... 15,000 570,000
Biomira, Inc.*(2)........................... 37,000 50,690
Cell Genesys, Inc.*......................... 11,725 101,304
Chiron Corporation*......................... 33,000 1,442,760
DeCODE genetics, Inc.*...................... 7,000 21,840
EntreMed, Inc.*(2).......................... 11,000 45,650
Genencor International, Inc.*(2)............ 19,000 312,930
Genentech, Inc.*(1)......................... 19,480 1,404,898
Genzyme Corporation*(2)..................... 20,000 836,000
Genzyme Molecular Oncology*................. 17,000 39,950
Human Genome Sciences, Inc.*................ 17,000 216,240
IDEC Pharmaceuticals Corporation*(2)........ 34,000 1,156,000
ILEX Oncology, Inc.*........................ 29,000 562,890
Isis Pharmaceuticals, Inc.*(2).............. 5,000 26,500
Medarex, Inc.*(2)........................... 14,000 92,260
Millennium Pharmaceuticals, Inc.*........... 20,296 319,256
NeoRx Corporation*.......................... 27,000 91,503
Onyx Pharmaceuticals, Inc.*(2).............. 12,000 147,960
Progenics Pharmaceuticals, Inc.*............ 3,200 48,192
Protein Design Labs, Inc.*.................. 12,200 167,760
Savient Pharmaceuticals, Inc.*.............. 33,000 153,120
Sirna Therapeutics, Inc.*................... 2,168 19,100
SuperGen, Inc.*(2).......................... 14,000 75,600
Targeted Genetics Corporation*.............. 10,000 18,200
Tularik, Inc.*.............................. 8,000 79,520
Vical Incorporated*......................... 8,500 36,975
-----------
8,710,486
-----------
CHEMICALS-DIVERSIFIED -- 0.40%+
Akzo Nobel N.V. ADR......................... 4,000 106,600
-----------
MEDICAL LABS/TESTING SERVICES -- 1.37%+
IMPATH, Inc.*(2)............................ 26,000 367,640
-----------
</Table>
See Notes to the Financial Statements.
58
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
PHARMACEUTICALS -- 40.46%+
Abbott Laboratories......................... 17,000 $ 743,920
Atlanta AG ADR.............................. 12,000 744,000
Aventis S.A. ADR(1)......................... 12,000 656,400
Bristol-Meyers Squibb Company............... 8,000 217,200
Cubist Pharmaceuticals, Inc.*............... 4,000 42,640
Eli Lilly and Company....................... 4,000 275,880
GlaxoSmithKline PLC ADR(2).................. 22,673 919,163
ImmunoGen, Inc.*............................ 6,000 25,620
Johnson & Johnson(1)........................ 10,000 517,000
MedImmune, Inc.*............................ 27,500 1,000,175
MGI Pharma, Inc.*(2)........................ 10,000 256,300
Novartis AG ADR............................. 49,000 1,950,690
OSI Pharmaceuticals, Inc.*.................. 737 23,739
Pfizer, Inc. ............................... 28,554 975,119
Roche Holding AG ADR........................ 4,000 313,760
Schering AG ADR............................. 16,000 775,360
Serono SA ADR............................... 8,000 116,480
Wyeth....................................... 27,900 1,270,845
-----------
10,824,291
-----------
TOTAL COMMON STOCKS
(cost $22,023,045)........................ 20,115,378
-----------
<Caption>
RIGHTS -- 0.00%+
- ----------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 0.00%+
OSI Pharmaceuticals, Inc.#(2)............... 13,000 --
-----------
TOTAL RIGHTS (cost $0)...................... --
-----------
<Caption>
CORPORATE BONDS -- PRINCIPAL
CONVERTIBLE -- 0.49%+ AMOUNT
- ----------------------------------------------------------------------
BIOMEDICAL -- 0.49%+
Human Genome Sciences, Inc.,
CLB, 5.000%, 2/1/2007..................... $ 150,000 130,500
-----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $109,776)........................... 130,500
-----------
</Table>
See Notes to the Financial Statements.
59
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PUT OPTIONS PURCHASED -- 0.94%+ CONTRACTS VALUE
- ----------------------------------------------------------------------
Genetech, Inc.
Expiring September 2003 at $50.00......... 200 $ 13,000
IDEC Pharmaceuticals Corporation
Expiring January 2003 at $40.00........... 230 184,000
Johnson & Johnson
Expiring January 2004 at $55.00........... 100 55,500
-----------
TOTAL PUT OPTIONS PURCHASED
(cost $356,163)........................... 252,500
-----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 24.54%+ AMOUNT
- ----------------------------------------------------------------------
DISCOUNT NOTES -- 17.08%+
Federal Home Loan Bank Discount Note
0.4000%, 7/1/2003......................... $4,571,000 4,571,000
-----------
VARIABLE RATE DEMAND NOTES** -- 7.46%+
American Family, 0.8510%.................... 668,731 668,731
U.S. Bank, N.A., 0.7775%.................... 610,606 610,606
Wisconsin Corporate Central Credit Union,
0.06975%.................................. 715,557 715,557
-----------
1,994,894
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $6,565,894)......................... 6,565,894
-----------
<Caption>
INVESTMENTS PURCHASED WITH PRINCIPAL
CASH PROCEEDS FROM AMOUNT
SECURITIES LENDING -- 16.52%+ OR SHARES
- ----------------------------------------------------------------------
COMMERCIAL PAPER -- 0.79%+
UBS Finance Commercial Paper, 1.310%,
7/1/2003 (cost $210,231).................. $ 210,231 210,231
-----------
MONEY MARKET FUNDS -- 0.80%+
AIM Liquid Assets Portfolio -- Institutional
Class..................................... 70,080 70,080
Merrill Lynch Premier Institutional Fund.... 145,053 145,053
-----------
TOTAL MONEY MARKET FUNDS
(cost $215,133)........................... 215,133
-----------
</Table>
See Notes to the Financial Statements.
60
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 14.93%+
CS First Boston Repurchase Agreement,
1.300%, 7/1/2003 (cost $1,191,353)(3)..... $1,191,353 $ 1,191,353
CS First Boston Repurchase Agreement,
1.435%, 7/1/2003 (cost $2,803,183)(3)..... 2,803,183 2,803,183
-----------
TOTAL REPURCHASE AGREEMENTS
(cost $3,994,536)......................... 3,994,536
-----------
TOTAL INVESTMENTS PURCHASED WITH CASH
PROCEEDS FROM SECURITIES LENDING (cost
$4,419,900)............................... 4,419,900
-----------
TOTAL INVESTMENTS -- 117.68%+
(COST $33,474,778)........................ $31,484,172
===========
</Table>
- ------------------
* -- 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 June 30, 2003.
ADR -- American Depository Receipts.
# -- Contingent value right (contingent upon profitability of company).
+ -- Calculated as a percentage of net assets.
(1) -- All or a portion of the shares have been committed as collateral for
written option contracts.
(2) -- This security or a portion of this security was out on loan at June 30,
2003. Total loaned securities had a market value of $4,081,044 at June
30, 2003.
(3) -- Collateralized by U.S. Government or U.S. Government Agency securities,
U.S. Government Agency mortgage-backed securities, certificates of
deposit or banker's acceptances.
See Notes to the Financial Statements.
61
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 78.98%+ SHARES VALUE
- ---------------------------------------------------------------------
ACCESS/BROADBAND -- 0.16%+
UnitedGlobalCom, Inc. -- Class A*......... 10,000 $ 51,700
-----------
BANKS -- 0.01%+
Banque du Liban et d'Outre-Mer S.A.L.
(BLOM) -- Class B GDR................... 100 2,250
-----------
BUSINESS SERVICES -- 7.73%+
Kroll, Inc.*.............................. 3,000 81,180
Quanta Services, Inc.*.................... 300,000 2,130,000
Ritchie Bros. Auctioneers Incorporated*... 7,200 277,272
-----------
2,488,452
-----------
COMPUTER HARDWARE/SOFTWARE -- 3.08%+
Comdisco Holding Company, Inc. ........... 10,000 990,000
-----------
COMPUTER SERVICES -- 0.34%+
CACI International Inc. -- Class A*....... 2,000 68,600
Fidelity National Information Solutions,
Inc.*................................... 1,600 41,728
-----------
110,328
-----------
E-BUSINESS SERVICES -- 0.21%+
First Advantage Corporation -- Class A*... 4,000 66,600
-----------
ENERGY -- 2.95%+
Calpine Corporation*(2)................... 144,000 950,400
-----------
ENERGY-PIPELINE -- 4.87%+
El Paso Corporation....................... 96,000 775,680
The Williams Companies, Inc. ............. 100,000 790,000
-----------
1,565,680
-----------
FINANCE -- 0.12%+
The FINOVA Group, Inc.*................... 200,000 39,000
-----------
HOLDING COMPANY -- 0.46%+
Leucadia National Corporation*............ 4,000 148,480
-----------
INFRASTRUCTURE -- 0.02%+
Lynch Interactive Corporation*............ 200 4,835
-----------
INTERNET TECHNOLOGY
INFRASTRUCTURE -- 3.71%+
Level 3 Communications, Inc.*............. 180,000 1,195,200
-----------
INTERNET TECHNOLOGY/SOFTWARE -- 0.02%+
BARRA, Inc.*.............................. 200 7,140
-----------
</Table>
See Notes to the Financial Statements.
62
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
MANUFACTURING -- 0.28%+
Lynch Corporation*........................ 9,000 $ 88,200
Steinway Musical Instruments, Inc.*....... 200 3,080
-----------
91,280
-----------
METAL FABRICATION -- 0.01%+
Commercial Metals Company................. 200 3,558
-----------
MINING -- 13.28%+
Aber Diamond Corporation*................. 2,600 53,901
Goldcorp, Inc.(1)......................... 101,000 1,212,000
Kinross Gold Corporation*................. 202,000 1,363,500
Stillwater Mining Company*................ 320,000 1,644,800
-----------
4,274,201
-----------
PROPERTY/CASUALTY INSURANCE -- 5.36%+
Alleghany Corporation*.................... 102 19,482
Fairfax Financial Holdings Limited........ 8,000 1,231,200
White Mountains Insurance Group, Ltd...... 1,200 474,000
-----------
1,724,682
-----------
PUBLISHING -- 4.95%+
Courier Corporation....................... 200 10,300
John Wiley & Sons, Inc. -- Class A........ 300 7,860
ProQuest Company*(2)...................... 4,000 103,200
R.H. Donnelley Corporation*............... 40,300 1,469,741
-----------
1,591,101
-----------
REAL ESTATE DEVELOPMENT -- 1.35%+
Alexander's, Inc.*........................ 100 8,349
American Real Estate Partners, L.P.*...... 19,800 243,540
Forest City Enterprises, Inc. -- Class
A....................................... 200 8,290
Texas Pacific Land Trust.................. 3,600 168,120
United Capital Corporation................ 200 6,960
-----------
435,259
-----------
RE-INSURANCE -- 6.48%+
Montpelier Re Holdings, Ltd.*............. 66,000 2,085,600
-----------
TITLE INSURANCE -- 0.01%+
First American Corporation................ 100 2,635
-----------
TRANSPORT SERVICES -- 4.58%+
Laidlaw International, Inc.*.............. 200,000 1,471,995
-----------
</Table>
See Notes to the Financial Statements.
63
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
UTILITIES-DIVERSIFIED -- 3.65%+
CenterPoint Energy, Inc. ................. 144,000 $ 1,173,600
-----------
UTILITIES-ELECTRIC -- 15.35%+
Allegheny Energy, Inc.*................... 180,000 1,521,000
Aquilla, Inc.*(2)......................... 250,000 645,000
CMS Energy Corporation*(2)................ 100,000 810,000
Reliant Resources, Inc.*.................. 320,000 1,961,600
-----------
4,937,600
-----------
TOTAL COMMON STOCKS
(cost $22,648,788)...................... 25,411,576
-----------
<Caption>
PREFERRED STOCKS -- 1.89%+
- ---------------------------------------------------------------------
ENERGY -- 1.89%+
Calpine Capital Trust II, 5.500%,
2/01/2005............................... 10,000 421,250
Calpine Capital Trust III, 5.000%,
8/01/2005............................... 5,000 186,875
-----------
TOTAL PREFERRED STOCK
(cost $501,525)......................... 608,125
-----------
<Caption>
PRINCIPAL
CORPORATE BONDS -- 2.68%+ AMOUNT
- ---------------------------------------------------------------------
FINANCE -- 1.08%+
The FINOVA Group, Inc., 7.500%,
11/15/2009.............................. $ 800,000 348,000
-----------
INFRASTRUCTURE -- 0.62%+
RCN Corporation, 11.125%, 10/15/2007(+)... 500,000 200,000
-----------
INTERNET TECHNOLOGY
INFRASTRUCTURE -- 0.98%+
Level 3 Communications, Inc., CLB, 0.000%,
3/15/2010*(+)........................... 400,000 314,000
-----------
TOTAL CORPORATE BONDS
(cost $759,764)......................... 862,000
-----------
<Caption>
CORPORATE BONDS --
CONVERTIBLE -- 3.68%+
- ---------------------------------------------------------------------
BIOMEDICAL -- 0.81%+
Human Genome Sciences, Inc., CLB, 5.000%,
2/1/2007................................ 300,000 261,000
-----------
</Table>
See Notes to the Financial Statements.
64
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 1.89%+
Trizec Hahn Corporation, CLB, 3.000%,
1/29/2021............................... $ 1,000,000 $ 607,500
-----------
VENTURE CAPITAL -- 0.98%+
Safeguard Scientifics, Inc., CLB, 5.000%,
6/15/2006............................... 400,000 314,000
-----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $1,128,466)....................... 1,182,500
-----------
<Caption>
RIGHTS -- 3.23%+ SHARES
- ---------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 3.23%+
Comdisco Holding Company, Inc.#........... 3,300,000 1,039,500
-----------
TOTAL RIGHTS
(cost $963,968)......................... 1,039,500
-----------
<Caption>
PUT OPTIONS PURCHASED -- 0.07%+ CONTRACTS
- ---------------------------------------------------------------------
The Kroger Co.
Expiring January 2005 at $10.00......... 60 3,000
Expiring January 2005 at $15.00......... 40 7,200
Expiring January 2006 at $12.50......... 70 10,850
-----------
TOTAL PUT OPTIONS
(cost $24,563).......................... 21,050
-----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 36.85%+ AMOUNT
- ---------------------------------------------------------------------
DISCOUNT NOTES -- 35.65%+
Federal Home Loan Bank Discount Note,
0.4000%, 7/1/2003....................... $11,472,000 11,472,000
-----------
</Table>
See Notes to the Financial Statements.
65
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES** -- 1.20%+
American Family, 0.8510%.................. $ 126,392 $ 126,392
U.S. Bank, N.A., .7775%................... 121,221 121,221
Wisconsin Corporate Central Credit Union,
0.6975%................................. 138,484 138,484
-----------
386,097
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $11,858,097)...................... 11,858,097
-----------
<Caption>
INVESTMENTS PURCHASED WITH PRINCIPAL
CASH PROCEEDS FROM AMOUNT
SECURITIES LENDING -- 7.82%+ OR SHARES
- ---------------------------------------------------------------------
COMMERCIAL PAPER -- 0.37%+
UBS Finance Commercial Paper, 1.3100%,
07/01/2003 (cost $119,754).............. $ 119,754 119,754
-----------
MONEY MARKET FUNDS -- 0.38%+
AIM Liquid Assets
Portfolio -- Institutional Class........ 39,919 39,919
Merrill Lynch Premier Institutional
Fund.................................... 82,628 82,628
-----------
TOTAL MONEY MARKET FUNDS
(cost $122,547)......................... 122,547
-----------
</Table>
See Notes to the Financial Statements.
66
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)
<Table>
INVESTMENTS PURCHASED WITH PRINCIPAL
CASH PROCEEDS FROM AMOUNT
SECURITIES LENDING -- 7.82%+ OR SHARES VALUE
- -------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 7.07%+
CS First Boston Repurchase Agreement,
1.3000%, 7/1/2003 (Cost $678,627)(3)............... $ 678,627 $ 678,627
CS First Boston Repurchase Agreement,
1.4350%, 7/1/2003 (Cost $1,596,772)(3)............. 1,596,772 1,596,772
--------------
TOTAL REPURCHASE AGREEMENTS
(cost $2,275,399).................................. 2,275,399
--------------
TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM
SECURITIES LENDING
(cost $2,517,700).................................. 2,517,700
--------------
TOTAL INVESTMENTS -- 135.20%+
(COST $40,402,871)................................. $ 43,500,548
==============
</Table>
- ------------------
* -- 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 June 30, 2003.
# -- Contingent value right (contingent upon profitability of company).
+ -- Calculated as a percentage of net assets.
(+) -- Security has a stepped rate. The rate listed is as of June 30, 2003.
GDR -- Global Depository Receipts.
(1) -- All or a portion of the shares have been committed as collateral for
written option contracts.
(2) -- This security or a portion of this security was out on loan at June 30,
2003. Total loaned securities had a market value of $2,281,542 at June
30, 2003.
(3) -- Collateralized by U.S. Government or U.S. Government Agency securities,
U.S. Government Agency mortgage-backed securities, certificates of
deposit or banker's acceptances.
See Notes to the Financial Statements.
67
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO
Portfolio of Investments -- June 30, 2003 (Unaudited)
<Table>
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 104.90%+ AMOUNT VALUE
- --------------------------------------------------------------------
DISCOUNT NOTES -- 104.90%+
Federal Home Loan Bank Discount Note,
0.4000%, 07/01/2003..................... $68,516,000 $68,516,000
-----------
TOTAL INVESTMENTS -- 104.90%+
(COST $68,516,000)...................... $68,516,000
===========
</Table>
- ------------------
+ -- Calculated as a percentage of net assets.
See Notes to the Financial Statements.
68
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Options Written -- June 30, 2003 (Unaudited)
<Table>
<Caption>
CALL OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
Getty Images, Inc.
Expiring July 2003 at $30.00................... 180 $203,400
WebMD Corporation
Expiring January 2005 at $10.00................ 1,090 327,000
--------
530,400
--------
<Caption>
PUT OPTIONS WRITTEN
- --------------------------------------------------------------------------
eBay, Inc.
Expiring January 2005 at $80.00................ 25 20,250
Fidelity National Information Solutions, Inc.
Expiring July 2003 at $15.00................... 1,250 15,625
Expiring July 2003 at $17.50................... 180 1,800
--------
37,675
--------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $601,674)................... $568,075
========
</Table>
See Notes to the Financial Statements.
69
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Options Written -- June 30, 2003 (Unaudited)
<Table>
<Caption>
PUT OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
Alleghany Corporation
Expiring January 2004 at $50.00................. 30 $11,400
Bristol-Myers Squibb Company
Expiring January 2005 at $20.00................. 10 1,375
General Dynamics Corporation
Expiring January 2004 at $60.00................. 40 7,700
Expiring January 2004 at $70.00................. 20 10,200
-------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $52,468)..................... $30,675
=======
</Table>
See Notes to the Financial Statements.
70
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Options Written -- June 30, 2003 (Unaudited)
<Table>
<Caption>
CALL OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
Genetech, Inc.
Expiring September 2003 at $55.00.............. 150 $273,750
Johnson & Johnson
Expiring January 2004 at $55.00................ 100 23,000
--------
296,750
--------
<Caption>
PUT OPTIONS WRITTEN
- --------------------------------------------------------------------------
Aventis S.A. ADR
Expiring July 2003 at $40.00................... 20 150
--------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $160,424)................... $296,900
========
</Table>
See Notes to the Financial Statements.
71
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Options Written -- June 30, 2003 (Unaudited)
<Table>
<Caption>
PUT OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
Goldcorp, Inc.
Expiring July 2003 at $12.50..................... 80 $5,800
------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $20,519)...................... $5,800
======
</Table>
See Notes to the Financial Statements.
72
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1) (3)........................... $309,186,378 $4,805,239
Receivable for contributed capital..................... 6,589,304 107,100
Cash................................................... 397,411 1,370
Dividends and interest receivable...................... 299,121 6,737
Other assets........................................... 12,025 144
------------ ----------
Total assets....................................... 316,484,239 4,920,590
------------ ----------
LIABILITIES:
Written options, at value(2)........................... 568,075 --
Payable to Adviser..................................... 280,147 4,274
Payable to Trustees.................................... 15,441 197
Payables for collateral received for securities
loaned............................................... 54,268,828 470,900
Payable for withdrawn capital.......................... 209,689 991
Payable for investments purchased...................... -- 18,640
Accrued expenses and other liabilities................. 173,760 5,638
------------ ----------
Total liabilities.................................. 55,515,940 500,640
------------ ----------
Net assets........................................... $260,968,299 $4,419,950
============ ==========
(1) Cost of investments.................................. $280,743,817 $5,613,016
============ ==========
(2) Premiums received.................................... $ 601,674 $ --
============ ==========
(3) Includes loaned securities with a market value of.... $ 53,376,859 $ 459,744
============ ==========
</Table>
See Notes to the Financial Statements.
73
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE
PARADIGM THE MEDICAL
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1)(3)............................... $31,622,826 $31,484,172
Receivable for contributed capital........................ 337,246 77,841
Cash...................................................... 93,227 1,528
Dividends and interest receivable......................... 55,180 11,076
Other assets.............................................. 231 1,495
----------- -----------
Total assets.......................................... 32,108,710 31,576,112
----------- -----------
LIABILITIES:
Written options, at value(2).............................. 30,675 296,900
Payable to Adviser........................................ 28,163 30,215
Payable to Trustees....................................... 1,010 1,522
Payables for collateral received for securities loaned.... 1,392,400 4,419,900
Payable for investments purchased......................... -- 41,300
Payable for withdrawn capital............................. 83,209 13,029
Accrued expenses and other liabilities.................... 13,152 18,190
----------- -----------
Total liabilities..................................... 1,548,609 4,821,056
----------- -----------
Net assets.............................................. $30,560,101 $26,755,056
=========== ===========
(1) Cost of investments..................................... $27,858,885 $33,474,778
=========== ===========
(2) Premiums received....................................... $ 52,468 $ 160,424
=========== ===========
(3) Includes loaned securities with a market value of....... $ 1,329,856 $ 4,081,044
=========== ===========
</Table>
See Notes to the Financial Statements.
74
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE KINETICS
GOVERNMENT
THE SMALL CAP MONEY
OPPORTUNITIES MARKET
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1) (3)............................. $43,500,548 $68,516,000
Receivable for contributed capital....................... 73,782 3,139,363
Cash..................................................... -- --
Dividends and interest receivable........................ 43,701 --
Other assets............................................. 307 3,673
----------- -----------
Total assets......................................... 43,618,338 71,659,036
----------- -----------
LIABILITIES:
Written options, at value(2)............................. 5,800 --
Payable to Adviser....................................... 43,599 18,275
Payable to Trustees...................................... 1,254 3,334
Payable to Custodian..................................... 1,742,267 3,675
Payables for collateral received for securities loaned... 2,517,700 --
Payable for withdrawn capital............................ 7,122,275 6,278,622
Accrued expenses and other liabilities................... 11,415 36,627
----------- -----------
Total liabilities.................................... 11,444,310 6,340,533
----------- -----------
Net assets............................................. $32,174,028 $65,318,503
=========== ===========
(1) Cost of investments.................................... $40,402,871 $68,516,000
=========== ===========
(2) Premiums received...................................... $ 20,519
===========
(3) Includes loaned securities with a market value of...... $ 2,281,542
===========
</Table>
See Notes to the Financial Statements.
75
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING
PORTFOLIO GROWTH PORTFOLIO
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+............................................ $ 725,692 $ 11,251
Interest.............................................. 2,214,370 22,199
Income from securities lending........................ 12,531 128
----------- --------
Total investment income......................... 2,952,593 33,578
----------- --------
EXPENSES:
Investment advisory fees.............................. 1,545,710 21,053
Administration fees................................... 124,023 1,717
Professional fees..................................... 64,332 848
Custodian fees and expenses........................... 42,200 5,302
Trustees' fees and expenses........................... 26,834 344
Fund accounting fees.................................. 30,816 1,279
Other expenses........................................ 9,590 136
----------- --------
Net expenses.................................... 1,843,505 30,679
----------- --------
Net investment income................................... 1,109,088 2,899
----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments and foreign currency.................... (8,592,150) (22,486)
Written option contracts expired or closed.......... (1,940,244) 9,230
Net change in unrealized appreciation (depreciation)
of:
Investments and foreign currency.................... 72,152,069 519,261
Written option contracts............................ (81,104) --
----------- --------
Net gain on investments................................. 61,538,571 506,005
----------- --------
Net increase in net assets resulting from operations.... $62,647,659 $508,904
=========== ========
+ Net of Foreign Taxes Withheld of:..................... $ 54,167 $ 293
=========== ========
</Table>
See Notes to the Financial Statements.
76
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE PARADIGM THE MEDICAL
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+........................................... $ 112,135 $ 113,349
Interest............................................. 131,286 38,304
Income from securities lending....................... 597 2,009
---------- ----------
Total investment income........................ 244,018 153,662
---------- ----------
EXPENSES:
Investment advisory fees............................. 99,335 155,711
Administration fees.................................. 7,510 12,371
Professional fees.................................... 4,275 6,368
Custodian fees and expenses.......................... 5,081 4,026
Trustees' fees and expenses.......................... 1,700 2,621
Fund accounting fees................................. 3,575 4,755
Other expenses....................................... 293 1,075
---------- ----------
Net expenses................................... 121,769 186,927
---------- ----------
Net investment income (loss)........................... 122,249 (33,265)
---------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments and foreign currency................... (201,961) (210,475)
Written option contracts expired or closed......... 28,881 116,703
Net change in unrealized appreciation (depreciation)
of:
Investments and foreign currency................... 3,411,523 4,578,205
Written option contracts........................... 26,186 (292,251)
---------- ----------
Net gain on investments................................ 3,264,629 4,192,182
---------- ----------
Net increase in net assets resulting from operations... $3,386,878 $4,158,917
========== ==========
+ Net of Foreign Taxes Withheld of:.................... $ 5,237 $ 11,293
========== ==========
</Table>
See Notes to the Financial Statements.
77
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2003 (Unaudited)
<Table>
<Caption>
THE SMALL CAP THE KINETICS
OPPORTUNITIES GOVERNMENT MONEY
PORTFOLIO MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+........................................... $ 123,921 $ --
Interest............................................. 206,560 339,648
Income from securities lending....................... 96 --
---------- --------
Total investment income........................ 330,577 339,648
---------- --------
EXPENSES:
Investment advisory fees............................. 105,522 166,209
Administration fees.................................. 6,785 34,021
Professional fees.................................... 4,327 17,725
Custodian fees and expenses.......................... 7,704 7,972
Trustees' fees and expenses.......................... 1,465 7,553
Fund accounting fees................................. 3,213 12,009
Other expenses....................................... 225 2,511
---------- --------
Net expenses................................... 129,241 248,000
---------- --------
Net investment income.................................. 201,336 91,648
---------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments and foreign currency................... (78,706) --
Written option contracts expired or closed......... 1,175 --
Net change in unrealized appreciation of:
Investments and foreign currency................... 3,175,830 --
Written option contracts........................... 10,508 --
---------- --------
Net gain on investments................................ 3,108,807 --
---------- --------
Net increase in net assets resulting from operations... $3,310,143 $ 91,648
========== ========
+ Net of Foreign Taxes Withheld of:.................... $ 332 $ --
========== ========
</Table>
See Notes to the Financial Statements.
78
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE INTERNET
THE INTERNET PORTFOLIO EMERGING GROWTH PORTFOLIO
--------------------------------- ----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- -----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income
(loss)................... $ 1,109,088 $ 1,430,291 $ 2,899 $ (43,192)
Net realized loss on sale
of investments, foreign
currency and written
options.................. (10,532,394) (119,821,765) (13,256) (2,199,366)
Net change in unrealized
appreciation of
investments, foreign
currency and written
options.................. 72,070,965 59,167,794 519,261 1,047,336
--------------- --------------- ---------- -----------
Net increase (decrease)
in net assets
resulting from
operations........... 62,647,659 (59,223,680) 508,904 (1,195,222)
--------------- --------------- ---------- -----------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
BENEFICIAL INTEREST
TRANSACTIONS:
Contributions.............. 1,872,252,096 6,246,337,962 820,043 479,676
Withdrawals................ (1,864,390,411) (6,295,968,211) (254,420) (1,130,358)
--------------- --------------- ---------- -----------
Net increase (decrease)
in net assets
resulting from
beneficial interest
transactions......... 7,861,685 (49,630,249) 565,623 (650,682)
--------------- --------------- ---------- -----------
Total increase (decrease)
in net assets............ 70,509,344 (108,853,929) 1,074,527 (1,845,904)
NET ASSETS:
Beginning of period........ 190,458,955 299,312,884 3,345,423 5,191,327
--------------- --------------- ---------- -----------
End of period.............. $ 260,968,299 $ 190,458,955 $4,419,950 $ 3,345,423
=============== =============== ========== ===========
</Table>
See Notes to the Financial Statements.
79
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE PARADIGM PORTFOLIO THE MEDICAL PORTFOLIO
---------------------------- -----------------------------
SIX MONTHS FOR THE SIX MONTHS FOR THE
ENDED YEAR ENDED ENDED YEAR ENDED
JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31,
(UNAUDITED) 2002 (UNAUDITED) 2002
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income
(loss).................. $ 122,249 $ (28,085) $ (33,265) $ (140,748)
Net realized loss on sale
of investments, foreign
currency and written
options................. (173,080) (453,569) (93,772) (2,214,611)
Net change in unrealized
appreciation
(depreciation) of
investments, foreign
currency and written
options................. 3,437,709 111,811 4,285,954 (8,862,627)
------------ ------------ ------------ -------------
Net increase
(decrease) in net
assets resulting
from operations..... 3,386,878 (369,843) 4,158,917 (11,217,986)
------------ ------------ ------------ -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
BENEFICIAL INTEREST
TRANSACTIONS:
Contributions............. 38,543,226 23,900,519 82,130,448 140,914,902
Withdrawals............... (21,889,279) (21,837,146) (82,975,166) (148,002,868)
------------ ------------ ------------ -------------
Net increase
(decrease) in net
assets resulting
from beneficial
interest
transactions........ 16,653,947 2,063,373 (844,718) (7,087,966)
------------ ------------ ------------ -------------
Total increase (decrease)
in net assets........... 20,040,825 1,693,530 3,314,199 (18,305,952)
NET ASSETS:
Beginning of period....... 10,519,276 8,825,746 23,440,857 41,746,809
------------ ------------ ------------ -------------
End of period............. $ 30,560,101 $ 10,519,276 $ 26,755,056 $ 23,440,857
============ ============ ============ =============
</Table>
See Notes to the Financial Statements.
80
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES PORTFOLIO
----------------------------
SIX MONTHS
ENDED FOR THE
JUNE 30, YEAR ENDED
2003 DECEMBER 31,
(UNAUDITED) 2002
- -------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)......................... $ 201,336 $ (21,502)
Net realized loss on sale of investments, foreign
currency and written options....................... (77,531) (1,537,614)
Net change in unrealized appreciation (depreciation)
of investments, foreign currency and written
options............................................ 3,186,338 (651,273)
------------- ------------
Net increase (decrease) in net assets resulting
from operations................................ 3,310,143 (2,210,389)
------------- ------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
BENEFICIAL INTEREST TRANSACTIONS:
Contributions........................................ 166,343,371 68,372,440
Withdrawals.......................................... (140,975,456) (71,826,291)
------------- ------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions.......... 25,367,915 (3,453,851)
------------- ------------
Total increase (decrease) in net assets.............. 28,678,058 (5,664,240)
NET ASSETS:
Beginning of period.................................. 3,495,970 9,160,210
------------- ------------
End of period........................................ $ 32,174,028 $ 3,495,970
============= ============
</Table>
See Notes to the Financial Statements.
81
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE KINETICS GOVERNMENT
MONEY MARKET PORTFOLIO
---------------------------------
SIX MONTHS
ENDED FOR THE
JUNE 30, YEAR ENDED
2003 DECEMBER 31,
(UNAUDITED) 2002
- --------------------------------------------------------------------------------------
OPERATIONS:
Net investment income............................ $ 91,648 $ 628,146
Net realized gain on sale of investments......... -- --
Net change in unrealized appreciation of
investments.................................... -- --
--------------- ---------------
Net increase in net assets resulting from
operations................................. 91,648 628,146
--------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM BENEFICIAL INTEREST TRANSACTIONS:
Contributions.................................... 2,042,288,314 6,517,468,035
Withdrawals...................................... (2,105,822,237) (6,484,223,874)
--------------- ---------------
Net increase (decrease) in net assets
resulting from beneficial interest
transactions............................... (63,533,923) 33,244,161
--------------- ---------------
Total increase (decrease) in net assets.......... (63,442,275) 33,872,307
NET ASSETS:
Beginning of period.............................. 128,760,778 94,888,471
--------------- ---------------
End of period.................................... $ 65,318,503 $ 128,760,778
=============== ===============
</Table>
See Notes to the Financial Statements.
82
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (Unaudited)
1. ORGANIZATION
The Kinetics Portfolios Trust (the "Trust") was organized as a Delaware
Statutory Trust on March 14, 2000 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management investment
company issuing its beneficial interests in series, each series representing a
distinct portfolio with its own investment objectives and policies. The series
currently authorized are The Internet Portfolio, The Internet Emerging Growth
Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap
Opportunities Portfolio, and The Kinetics Government Money Market Portfolio (the
"Master Portfolios"). Pursuant to the 1940 Act, the Master Portfolios, with the
exception of The Kinetics Government Money Market Portfolio, are
"non-diversified" series of the Trust. Each of the Master Portfolios commenced
operations on April 28, 2000.
Each Master Portfolio is a Master Investment Portfolio in a master-feeder fund
structure. Each Master Portfolio has multiple feeder funds invested in the
Master Portfolio. By contributing assets to the Master Portfolio, the feeder
funds receive a beneficial interest in the Master Portfolio. The Master
Portfolio then invests the contributed assets in portfolio securities and
allocates income, gains (losses) and expenses to the feeder funds based on the
funds' proportionate interest in the Master Portfolio.
Each of the Master Portfolios, with the exception of The Kinetics Government
Money Market Portfolio, seeks to provide investors with long-term capital
growth. The Internet Portfolio invests primarily in the equity securities of
U.S. and foreign companies engaged in the Internet and Internet-related
activities. The Internet Emerging Growth Portfolio invests primarily in the
equity securities of small and medium capitalization U.S. and foreign growth
emerging companies engaged in the Internet and Internet-related activities. The
Paradigm Portfolio invests primarily in the equity securities of U.S. and
foreign companies that the investment adviser believes are undervalued with high
returns on equity, as well as, well positioned to reduce their costs, extend the
reach of their distribution channels and experience significant growth in
revenues. The Medical Portfolio invests primarily in the equity securities of
U.S. and foreign companies engaged in medical research, pharmaceutical
treatments and related medical technology with a focus on companies engaged in
cancer research and drug development. The Small Cap Opportunities Portfolio
invests primarily in the equity securities of U.S. and foreign small
capitalization companies that provide attractive valuation
83
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
opportunities due to special situations such as lack of institutional ownership,
lack of significant analyst coverage or companies with sound fundamentals that
have experienced a short-term earnings shortfall. The Kinetics Government Money
Market Portfolio seeks to provide investors with current income consistent with
the preservation of capital and maintenance of liquidity by investing in money
market instruments issued by the U.S. Government, its agencies or
instrumentalities.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION
Master Portfolio securities (other than Government) that are listed on a U.S.
securities exchange (whether domestic or foreign) for which market quotations
are readily available are valued at the last quoted sale price as of 4:00 p.m.
Eastern time on the day the valuation is made. 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").
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 most recent bid price. Fixed-income securities
(other than obligations having a maturity of 60 days or less) are normally
valued on the basis of quotes obtained from pricing services, which take into
account appropriate factors such as institutional sized trading in similar
groups of securities, yield, quality, coupon rate, maturity, type of issue,
trading characteristics and other market data. 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 June 30, 2003, the Master Portfolios did not hold any investment
securities which were determined to be fair valued pursuant to the guidelines
adopted by the Board of Trustees.
REPURCHASE AGREEMENTS
Each Master Portfolio may enter into repurchase agreements with banks that are
members of the Federal Reserve System or securities dealers who are members of a
national securities exchange or are primary dealers in U.S. Government
Securities. In connection with transactions in repurchase
84
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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 value of investment securities
and other assets and liabilities are translated at the daily rates of exchange,
and (ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on
85
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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, 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 June 30, 2003, the Master Portfolios
did not hold any investment securities which were determined to be restricted
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 to no more than 33 1/3% of its assets.
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
86
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
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 intends to qualify as a partnership for federal income tax
purposes. Therefore, the Master Portfolios believe they will not be subject to
any federal income tax on their income and net realized capital gains (if any).
However, each investor in the Master Portfolios will report its allocable share
of the Master Portfolio's income and capital gains for purposes of determining
its federal income tax liability.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
OTHER
Realized gains and losses on the sale of investments are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend date and
interest income is recognized on the accrual basis.
3. INVESTMENT ADVISER
The Trust has an Investment Advisory Agreement (the "Agreement") 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 Agreement, 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 six months
ended June 30, 2003, The Internet Portfolio, The Internet Emerging Growth
Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap
Opportunities Portfolio, and The Kinetics Government Money Market Portfolio
incurred expenses of $1,545,710, $21,053, $99,335, $155,711, $105,522 and
$166,209, respectively, pursuant to the Investment Advisory Agreement.
87
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
4. SECURITIES TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 2003 were as follows:
<Table>
<Caption>
PURCHASES SALES
------------------------ ------------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----------- ---------- -----------
The Internet Portfolio....... $-- $83,341,244 $-- $64,444,877
The Internet Emerging Growth
Portfolio.................. -- 2,032,675 -- 85,503
The Paradigm Portfolio....... -- 14,684,524 -- 1,710,722
The Medical Portfolio........ -- 2,214,253 -- 5,255,763
The Small Cap Opportunities
Portfolio.................. -- 26,045,115 -- 1,663,445
</Table>
As of June 30, 2003, unrealized appreciation (depreciation) on investment
securities for federal income tax purposes was as follows:
<Table>
<Caption>
NET
APPRECIATION APPRECIATED DEPRECIATED
(DEPRECIATION) SECURITIES SECURITIES
-------------- ----------- ------------
The Internet Portfolio................. $26,727,209 $79,584,678 $(52,857,469)
The Internet Emerging Growth
Portfolio............................ (809,337) 811,676 (1,621,013)
The Paradigm Portfolio................. 3,758,285 4,252,343 (494,058)
The Medical Portfolio.................. (2,008,646) 3,263,810 (5,272,456)
The Small Cap Opportunities
Portfolio............................ 3,097,677 3,961,823 (864,146)
</Table>
At June 30, 2003, the cost of investments for federal income tax purposes was
$282,459,169, $5,614,576, $27,864,541, $33,492,818 and $40,402,871 for The
Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm
Portfolio, The Medical Portfolio, and The Small Cap Opportunities Portfolio,
respectively.
For the six months ended June 30, 2003 the Master Portfolios wrote the following
options:
<Table>
<Caption>
NUMBER PREMIUM
OF CONTRACTS AMOUNT
------------ -----------
THE INTERNET PORTFOLIO
- ------------------------------------------
Outstanding at the Beginning of Period.... 1,612 $ 1,077,028
Options Written........................... 10,310 2,970,072
Options Exercised......................... (86) (49,860)
Options Expired........................... (520) (271,371)
Options Closed............................ (8,591) (3,124,195)
------ -----------
Outstanding at the End of Period.......... 2,725 $ 601,674
====== ===========
</Table>
88
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
<Table>
<Caption>
NUMBER PREMIUM
OF CONTRACTS AMOUNT
------------ -----------
THE INTERNET EMERGING GROWTH PORTFOLIO
- ------------------------------------------
Outstanding at the Beginning of Period.... 20 $ 9,230
Options Expired........................... (20) (9,230)
------ -----------
Outstanding at the End of Period.......... -- $ --
====== ===========
THE PARADIGM PORTFOLIO
- ------------------------------------------
Outstanding at the Beginning of Period.... 380 $ 45,257
Options Written........................... 502 216,877
Options Expired........................... (20) (7,232)
Options Closed............................ (762) (202,434)
------ -----------
Outstanding at the End of Period.......... 100 $ 52,468
====== ===========
THE MEDICAL PORTFOLIO
- ------------------------------------------
Outstanding at the Beginning of Period.... 580 $ 448,325
Options Written........................... 170 61,777
Options Exercised......................... (310) (202,509)
Options Expired........................... (80) (45,319)
Options Closed............................ (90) (101,850)
------ -----------
Outstanding at the End of Period.......... 270 $ 160,424
====== ===========
THE SMALL CAP OPPORTUNITIES PORTFOLIO
- ------------------------------------------
Outstanding at the Beginning of Period.... 180 $ 28,812
Options Written........................... 300 57,998
Options Closed............................ (400) (66,291)
------ -----------
Outstanding at the End of Period.......... 80 $ 20,519
====== ===========
</Table>
5. PORTFOLIO SECURITIES LOANED
As of June 30, 2003, 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 value of the securities on loan
and the value of the related collateral at June 30, 2003, were as follows:
<Table>
<Caption>
SECURITIES COLLATERAL
----------- -----------
The Internet Portfolio.................... $53,376,859 $54,268,828
The Internet Emerging Growth Portfolio.... 459,744 470,900
The Paradigm Portfolio.................... 1,329,856 1,392,400
The Medical Portfolio..................... 4,081,044 4,419,900
The Small Cap Opportunities Portfolio..... 2,281,542 2,517,700
</Table>
89
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
6. SELECTED FINANCIAL HIGHLIGHTS
Financial highlights for the Master Portfolios were as follows:
<Table>
<Caption>
THE INTERNET PORTFOLIO
------------------------------------------------------------
SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+)
ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000
---------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement....... 1.49%* 1.51% 1.44% 1.43%*
After expense reimbursement........ 1.49%* 1.51% 1.44% 1.43%*
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement....... 0.90%* 0.50% 0.32% (0.69%)*
After expense reimbursement........ 0.90%* 0.50% 0.32% (0.69%)*
Portfolio turnover rate............. 34% 41% 44% 16%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE INTERNET EMERGING GROWTH PORTFOLIO
------------------------------------------------------------
SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+)
ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000
---------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement....... 1.82%* 1.83% 2.30% 1.93%*
After expense reimbursement........ 1.82%* 1.83% 2.30% 1.84%*
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement....... 0.17%* (1.07%) (0.22%) (0.35%)*
After expense reimbursement........ 0.17%* (1.07%) (0.22%) (0.26%)*
Portfolio turnover rate............. 4% 27% 24% 30%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE PARADIGM PORTFOLIO
------------------------------------------------------------
SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+)
ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000
---------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement....... 1.53%* 1.64% 2.27% 2.85%*
After expense reimbursement........ 1.53%* 1.64% 2.27% 2.60%*
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement....... 1.54%* (0.27%) (0.69%) (0.66%)*
After expense reimbursement........ 1.54%* (0.27%) (0.69%) (0.41%)*
Portfolio turnover rate............. 12% 40% 41% 89%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
90
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2003 (Unaudited)
<Table>
<Caption>
THE MEDICAL PORTFOLIO
-------------------------------------------------------------
SIX MONTHS
ENDED FOR THE FOR THE APRIL 28, 2000(+)
JUNE 30, YEAR ENDED YEAR ENDED THROUGH
2003 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2002 2001 2000
----------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement...... 1.50%* 1.53% 1.51% 1.47%*
After expense reimbursement....... 1.50%* 1.53% 1.51% 1.46%*
Ratio of net investment loss to
average net assets:
Before expense reimbursement...... (0.27%)* (0.47%) (0.39%) (0.55%)*
After expense reimbursement....... (0.27%)* (0.47%) (0.39%) (0.54%)*
Portfolio turnover rate............ 12% 9% 6% 1%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES PORTFOLIO
-------------------------------------------------------------
SIX MONTHS
ENDED FOR THE FOR THE APRIL 28, 2000(+)
JUNE 30, YEAR ENDED YEAR ENDED THROUGH
2003 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2002 2001 2000
----------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement...... 1.53%* 1.66% 2.35% 13.27%*
After expense reimbursement....... 1.53%* 1.66% 2.35% 10.93%*
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement...... 2.38%* (0.29%) (0.99%) (11.12%)*
After expense reimbursement....... 2.38%* (0.29%) (0.99%) (8.78%)*
Portfolio turnover rate............ 16% 200% 181% 198%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO
-------------------------------------------------------------
SIX MONTHS
ENDED FOR THE FOR THE APRIL 28, 2000(+)
JUNE 30, YEAR ENDED YEAR ENDED THROUGH
2003 DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2002 2001 2000
----------- ------------ ------------ -----------------
Ratio of expenses to average net
assets:
Before expense reimbursement...... 0.75%* 0.75% 0.79% 0.78%*
After expense reimbursement....... 0.75%* 0.75% 0.79% 0.78%*
Ratio of net investment income to
average net assets:
Before expense reimbursement...... 0.28%* 0.67% 2.70% 5.36%*
After expense reimbursement....... 0.28%* 0.67% 2.70% 5.36%*
Portfolio turnover rate............ N/A N/A N/A N/A
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
91
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Kinetics Mutual
Funds, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
INVESTMENT ADVISER AND
SHAREHOLDER SERVICING AGENT
Kinetics Asset Management, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
100 East Wisconsin Avenue
Milwaukee, WI 53202
DISTRIBUTOR
Kinetics Funds Distributor, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
ADMINISTRATOR
FUND ACCOUNTANT AND
TRANSFER AGENT
U.S. Bancorp Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
U.S. Bank, N.A.
615 East Michigan Street
Milwaukee, WI 53202
THIS MATERIAL MUST BE PRECEDED OR
ACCOMPANIED BY A PROSPECTUS
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end investment companies.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The Registrant's President/Chief Executive Officer and Treasurer/Chief
Financial Officer have concluded that the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940
(the "Act")) are effective as of a date within 90 days of the filing date of the
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
Act.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the
Registrant's last fiscal half-year that has materially affected, or is
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 10. EXHIBITS.
(a)Any code of ethics or amendment thereto. Not applicable at this time.
(b)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
(c)Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust
By (Signature and Title) /s/ Peter B. Doyle, President
-----------------------------
Peter B. Doyle, President
Date August 22, 2003
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, President
-----------------------------
Peter B. Doyle, President
Date August 22, 2003
By (Signature and Title) /s/ Leonid Polyakov, Treasurer
------------------------------
Leonid Polyakov, Treasurer
Date August 22, 2003