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)
U.S. BANCORP FUND SERVICES, LLC
615 EAST MICHIGAN STREET
MILWAUKEE, WI 53202
(Name and address of agent for service)
(800) 930-3828
Registrant's telephone number, including area code
Date of fiscal year end: DECEMBER 31, 2004
Date of reporting period: JUNE 30, 2004
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. Section 3507.
ITEM 1. REPORT TO STOCKHOLDERS.
JUNE 30, 2004 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, 2004
<Table>
<Caption>
PAGE
----
Shareholders' Letter........................................ 2
Market Commentary........................................... 5
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
Statement of Assets & Liabilities......................... 9
Statement of Operations................................... 12
Statements of Changes in Net Assets....................... 16
Notes to Financial Statements............................. 23
Financial Highlights...................................... 34
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
Portfolio of Investments The Internet Portfolio........... 47
Portfolio of Investments The Internet Emerging Growth
Portfolio.............................................. 52
Portfolio of Investments The Paradigm Portfolio........... 56
Portfolio of Investments The Medical Portfolio............ 63
Portfolio of Investments The Small Cap Opportunities
Portfolio.............................................. 68
Portfolio of Investments The Kinetics Government Money
Market Portfolio....................................... 73
Portfolio of Options Written The Internet Portfolio....... 74
Portfolio of Options Written The Medical Portfolio........ 75
Statement of Assets & Liabilities......................... 76
Statement of Operations................................... 79
Statements of Changes in Net Assets....................... 82
Notes to Financial Statements............................. 86
</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, 2004, and wish to thank you for the
confidence you have placed in us. We will always endeavor to reward
you for what we believe to be your well-placed trust.
The most notable feature of the first half of 2004 was the lackluster
or negative investment returns across a spectrum of investment
strategies. During the first six months of 2004, our Investor Class
Funds posted the following returns: Internet Fund, (2.66%); Paradigm
Fund, 2.08%; Small Cap Opportunities Fund, 3.08%; Medical Fund, 0.76%;
and Emerging Internet Fund, 0.00%*. Our recent returns must seem
anemic given the stellar year we had in 2003. As mentioned in the
past, however, stock returns are not achieved in a linear fashion.
Just as a good period does not portend more immediate good periods, a
down or flat period does not portend more of the same. Of course, it
does not preclude more of the same either, and there is much with
which to be concerned in the capital markets today. Prime examples are
the high valuations relative to the underlying business prospects for
a great many companies. We recognize the environment in which we
operate and believe we have structured our funds to achieve long-term
success, while avoiding unnecessary or potentially catastrophic risks.
Stocks are inherently volatile, and even great companies' stocks can
fluctuate widely in any artificial or discrete time period. This
volatility risk is not akin to financial risk and should be embraced
and exploited to produce superior investment results.
We continue to inform our shareholders through our website,
www.kineticsfunds.com. The website provides an array of information,
including recent portfolio holdings, investment commentary,
newsflashes, performance data, and online access to account
information.
2
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 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 PARADIGM FUND focuses on companies that can achieve sustainable
high returns on equity. This Fund has produced very positive returns
over the last 4 1/2 years. The typical large cap stock index has
posted substantially lower 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 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 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.
3
/s/ Peter B. Doyle
Peter B. Doyle
President
Kinetics Mutual Funds, Inc.
* Total return figures represent past performance and do not indicate
future results, which will vary. The investment return and principal
value of an investment will fluctuate and, therefore, an investor's
shares, when redeemed, may be worth more or less than their original
cost. Current performance may be higher or lower than the total return
shown. Please call the Fund at 1-800-930-3828 to obtain the most
recent month-end returns. Performance reflects expense limitations in
effect. In their absence, performance would be reduced. Returns do not
reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
4
KINETICS MUTUAL FUNDS, INC.
MARKET COMMENTARY
Dear Shareholders,
In our 2003 annual report, released earlier this year, we offered no
market predictions for 2004, due to our acknowledged inability to
predict short-term movements in the stock market. We have reassessed
our abilities and still believe we are incapable of making worthwhile
predictions regarding the short-term direction of the market. We did,
however, caution, and still caution, that the typical stock was/is
expensive based on historical valuation metrics. Perhaps, we should
have also outlined, more specifically, how stock investment returns
are achieved.
Quite simply, stock returns are a function of the going-in dividend
yield (which is known), the future earnings growth rate of the
underlying company, and the expansion or contraction of valuation,
which is dictated by investors, but largely driven by changes in
interest rates. To quote Warren Buffett: "In economics, interest rates
act as gravity behaves in the physical world. At all times, in all
markets, in all parts of the world, the tiniest change in rates
changes the value of every financial asset." The time value of money
makes the future earnings of stocks worth much more in a low interest
rate environment because your "opportunity cost" (what else you could
do with your money) is much lower if interest rates are 4% than if
interest rates are 10%. That is, in a low interest rate environment,
your other opportunities are less desirable relative to the future
earnings stream from stocks, and valuations tend to expand
accordingly.
While certainly not desired, the uninspiring returns for the first
half of 2004 should not be a complete surprise to professional
investors. This statement is not, as noted above, predicated on our
investment acumen regarding the market direction, but, rather, on the
relationship between financial assets and interest rates.
Historically, valuation expansion as a result of declining interest
rates has accounted for a very significant percentage of returns.
Conversely, rising rates have typically muted equity investment
results, despite substantially rising earnings. Such an environment
was particularly evident during the 1970s, when corporate earnings
growth was vigorous, but stock prices produced much more modest
results.
At the previous 1% Fed Funds rate, which was a negative inflation-
adjusted interest rate, and a 46-year low, investors should have at
5
least considered the possibility that a meaningful return component
was no longer available to them. That is, while interest rates did not
have to move higher, it was unlikely that they would decline further.
(As of this writing, early August, the Federal Reserve has raised the
Fed Funds Rate to 1.5% from 1%, where it was at the start of the
year.) The past and present low interest rates may prove to be
debilitating, as modest absolute increases require large mark-to-
market write-downs of financial assets. An interest rate move from 1%
to 2% is quite different from an interest rate move from 9% to 10%,
although in an absolute sense the change is identical at 1%. At a
minimum, investors should have given some consideration to the
possibility of valuation contraction from rising interest rates.
We did, and on balance our funds were and are positioned defensively,
reflecting the possibility that the market might experience temporary
contraction. This does not mean that we will post positive returns,
although that remains a possibility in a number of our funds, but,
rather, that we are likely to suffer much less than we otherwise would
have in an unpleasant environment. This positioning is critical to
investors since investment returns are asymmetrical, meaning that a
decline in a portfolio is not offset by a gain of a similar magnitude.
For example, a decline of 50% requires an offsetting gain of 100% to
get back to the starting point.
This Volatility Paradox reveals perhaps one of the only certainties in
financial management - that a grievous loss almost certainly precludes
the possibility of a large return. Kinetics' focus on asymmetrical
return securities seeks to avoid such losses. We practice this
strategy in all of our funds, but it has limitations in our sector
funds.
Our investment philosophy is predicated upon analyzing and assessing
businesses and not short-term market performance, which is largely
unknowable. From this standpoint, we believe our Funds offer
attractive risk/reward characteristics for investors.
We thank you for choosing our funds in your quest to achieve your
financial 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, THE KINETICS MUTUAL FUNDS PURSUE
THEIR INVESTMENT OBJECTIVES BY INVESTING ALL OF THEIR INVESTABLE
ASSETS IN A CORRESPONDING PORTFOLIO SERIES OF KINETICS PORTFOLIOS
TRUST.
THE INFORMATION CONCERNING THE FUNDS INCLUDED IN THE SHAREHOLDER
REPORT 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, 2004 -- KINETICS ASSET MANAGEMENT, INC.
8
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING GROWTH
FUND FUND
- ----------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at
value*....................................... $ 205,047,248 $ 4,258,527
Receivable from Adviser........................ -- 22,468
Receivable for Fund shares sold................ 1,055,462 14,600
Prepaid expenses and other assets.............. 21,304 837
------------- ------------
Total assets................................. 206,124,014 4,296,432
------------- ------------
LIABILITIES:
Payable for Master Portfolio interest
purchased.................................... 883,555 13,678
Payable to Directors........................... 10,766 218
Payable for service fees....................... 41,754 864
Payable for distribution fees.................. 2,141 --
Payable for Fund shares repurchased............ 171,907 922
Accrued expenses and other liabilities......... 478,345 16,156
------------- ------------
Total liabilities............................ 1,588,468 31,838
------------- ------------
Net assets................................... $ 204,535,546 $ 4,264,594
============= ============
NET ASSETS CONSIST OF:
Paid in capital................................ $ 395,031,105 $ 15,278,213
Accumulated net investment income (loss)....... (271,359) 14,439
Accumulated net realized loss on investments,
options and written option contracts......... (188,176,560) (11,678,371)
Net unrealized appreciation (depreciation) on:
Investments.................................. (2,253,227) 650,313
Written option contracts..................... 205,587 --
------------- ------------
Net assets................................... $ 204,535,546 $ 4,264,594
============= ============
CALCULATION OF NET ASSET VALUE PER SHARE --
INVESTOR CLASS:
Net assets..................................... $ 201,598,005 $ 4,264,594
Shares outstanding............................. 8,884,363 995,259
Net asset value per share (offering and
redemption price)............................ $ 22.69 $ 4.28
============= ============
CALCULATION OF NET ASSET VALUE PER SHARE --
ADVISOR CLASS A:
Net assets..................................... $ 2,937,541
Shares outstanding............................. 131,823
Net asset value per share...................... $ 22.28
=============
Offering price per share ($22.28 divided by
.9425)....................................... $ 23.64
=============
</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.
9
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE
PARADIGM THE MEDICAL
FUND FUND
- ---------------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at value*............ $69,452,617 $21,960,970
Receivable from Adviser.................................... -- 19,890
Receivable for Master Portfolio interest sold.............. -- 656
Receivable for Fund shares sold............................ 372,499 6,052
Prepaid expenses........................................... 9,585 7,703
----------- -----------
Total assets............................................. 69,834,701 21,995,271
----------- -----------
LIABILITIES:
Payable for Master Portfolio interest purchased............ 277,627 --
Payable to Directors....................................... 3,512 1,292
Payable for service fees................................... 14,387 4,539
Payable for distribution fees.............................. 3,544 164
Payable for Fund shares repurchased........................ 94,872 6,708
Accrued expenses and other liabilities..................... 106,400 56,609
----------- -----------
Total liabilities........................................ 500,342 69,312
----------- -----------
Net assets............................................... $69,334,359 $21,925,959
=========== ===========
NET ASSETS CONSIST OF:
Paid in capital............................................ $55,587,006 $25,113,617
Accumulated net investment loss............................ (226,993) (114,083)
Accumulated net realized gain (loss) on investments,
options and written option contracts..................... 4,292,043 (2,244,920)
Net unrealized appreciation (depreciation) on:
Investments.............................................. 9,682,303 (874,340)
Written option contracts................................. -- 45,685
----------- -----------
Net assets............................................... $69,334,359 $21,925,959
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS:
Net assets................................................. $46,155,131 $21,237,161
Shares outstanding......................................... 3,035,130 1,344,949
Net asset value per share (offering and redemption
price)................................................... $ 15.21 $ 15.79
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A:
Net assets................................................. $18,584,815 $ 688,798
Shares outstanding......................................... 1,230,369 44,266
Net asset value per share.................................. $ 15.11 $ 15.56
=========== ===========
Offering price per share ($15.11 divided by .9425 and
$15.56 divided by .9425, respectively)................... $ 16.03 $ 16.51
=========== ===========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS C:
Net assets................................................. $ 4,594,413
Shares outstanding......................................... 306,786
Net asset value per share (offering and redemption
price)................................................... $ 14.98
===========
</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, 2004 (Unaudited)
<Table>
<Caption>
THE SMALL THE KINETICS
CAP GOVERNMENT
OPPORTUNITIES MONEY
FUND MARKET FUND
- ------------------------------------------------------------------------------------------
ASSETS:
Investments in the Master Portfolios, at value*............ $20,581,157 $2,722,968
Receivable from Adviser.................................... 568 25,239
Receivable for Fund shares sold............................ 867,237 --
Prepaid expenses........................................... 18,672 17,238
----------- ----------
Total assets............................................. 21,467,634 2,765,445
----------- ----------
LIABILITIES:
Payable for Master Portfolio Interest Purchased............ 821,524 --
Payable to Directors....................................... 773 1,451
Payable for service fees................................... 3,727 800
Payable for distribution fees.............................. 442 --
Payable for Fund shares repurchased........................ 45,713 --
Accrued expenses and other liabilities..................... 30,757 27,954
----------- ----------
Total liabilities........................................ 902,936 30,205
----------- ----------
Net assets............................................... $20,564,698 $2,735,240
=========== ==========
NET ASSETS CONSIST OF:
Paid in capital............................................ $14,053,243 $2,735,240
Accumulated net investment income.......................... 232,287 --
Accumulated net realized gain on investments, options and
written option contracts................................. 1,907,680 --
Net unrealized appreciation on:
Investments.............................................. 4,371,488 --
Written option contracts................................. -- --
----------- ----------
Net assets............................................... $20,564,698 $2,735,240
=========== ==========
CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS:
Net assets................................................. $18,275,021 $2,735,240
Shares outstanding......................................... 1,071,406 2,735,240
Net asset value per share (offering and redemption
price)................................................... $ 17.06 $ 1.00
=========== ==========
CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A:
Net assets................................................. $ 2,289,677
Shares outstanding......................................... 134,744
Net asset value per share.................................. $ 16.99
===========
Offering price per share ($16.99 divided by .9425)......... $ 18.03
===========
</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 OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING
FUND GROWTH FUND
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 1,351,556 $ 60,344
Interest.................................................. 1,289,435 27,736
Income from securities lending............................ 63,109 509
------------ --------
Total investment income............................... 2,704,100 88,589
------------ --------
EXPENSES:
Expenses allocated from Master Portfolios................. 1,559,442 35,348
Shareholder servicing fees and expenses................... 723,352 22,955
Administration fees....................................... 96,179 1,917
Reports to shareholders................................... 106,120 3,039
Registration fees......................................... 24,206 17,108
Professional fees......................................... 43,222 2,745
Directors' fees and expenses.............................. 20,505 482
Fund accounting fees...................................... 5,161 --
Distribution fees -- Advisor Class A...................... 1,349 --
Other expenses............................................ 11,102 182
------------ --------
Total expenses........................................ 2,590,638 83,776
Less, expense reimbursement and waiver.................... -- (22,468)
------------ --------
Net expenses.......................................... 2,590,638 61,308
------------ --------
Net investment income................................. 113,462 27,281
------------ --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain (loss) on:
Investments and foreign currency...................... 22,465,468 (59,147)
Written option contracts expired or closed............ 19,359 --
Net change in unrealized appreciation (depreciation) of:
Investments and foreign currency...................... (28,678,166) 15,593
Written option contracts.............................. 38,255 --
------------ --------
Net loss on investments............................... (6,155,084) (43,554)
------------ --------
Net decrease in net assets resulting from
operations.......................................... $ (6,041,622) $(16,273)
============ ========
+ Net of Foreign Taxes Withheld of: $ 14,711 $ 323
============ ========
</Table>
See Notes to the Financial Statements.
12
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE PARADIGM THE MEDICAL
FUND FUND
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 401,215 $ 157,292
Interest.................................................. 158,172 22,595
Income from securities lending............................ 324 661
----------- ----------
Total investment income............................... 559,711 180,548
----------- ----------
EXPENSES:
Expenses allocated from Master Portfolios................. 514,019 185,226
Shareholder servicing fees and expenses................... 144,792 75,879
Administration fees....................................... 30,394 9,928
Reports to shareholders................................... 38,393 11,348
Registration fees......................................... 35,490 20,384
Professional fees......................................... 17,583 6,489
Directors' fees and expenses.............................. 8,247 2,303
Fund accounting fees...................................... 4,693 588
Distribution fees -- Advisor Class A...................... 20,221 920
Distribution fees -- Advisor Class C...................... 14,022 --
Other expenses............................................ 364 1,456
----------- ----------
Total expenses........................................ 828,218 314,521
Less, expense reimbursement and waiver.................... -- (19,890)
----------- ----------
Net expenses.......................................... 828,218 294,631
----------- ----------
Net investment loss................................... (268,507) (114,083)
----------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain on:
Investments and foreign currency...................... 4,313,530 215,281
Written option contracts expired or closed............ 74,512 108,972
Net change in unrealized depreciation of:
Investments and foreign currency...................... (2,792,322) (10,309)
Written option contracts.............................. (69,146) (32,656)
----------- ----------
Net gain on investments............................... 1,526,574 281,288
----------- ----------
Net increase in net assets resulting from
operations.......................................... $ 1,258,067 $ 167,205
=========== ==========
+ Net of Foreign Taxes Withheld of: $ 14,823 $ 13,015
=========== ==========
</Table>
See Notes to the Financial Statements.
13
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE KINETICS
THE SMALL CAP GOVERNMENT
OPPORTUNITIES MONEY MARKET
FUND FUND
- ------------------------------------------------------------------------------------------
INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS:
Dividends+................................................ $ 304,457 $ --
Interest.................................................. 57,914 10,157
Income from securities lending............................ 233 --
----------- --------
Total investment income............................... 362,604 10,157
----------- --------
EXPENSES:
Expenses allocated from Master Portfolios................. 118,934 13,785
Shareholder servicing fees and expenses................... 42,789 9,204
Administration fees....................................... 7,828 360
Reports to shareholders................................... 4,053 2,253
Registration fees......................................... 25,298 6,616
Professional fees......................................... 5,930 1,347
Directors' fees and expenses.............................. 1,817 535
Fund accounting fees...................................... 1,238 --
Distribution fees -- Advisor Class A...................... 2,494 --
Other expenses............................................ 182 1,296
----------- --------
Total expenses........................................ 210,563 35,396
Less, expense reimbursement and waiver.................... -- (25,239)
----------- --------
Net expenses.......................................... 210,563 10,157
----------- --------
Net investment income................................. 152,041 --
----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED
FROM MASTER PORTFOLIOS:
Net realized gain (loss) on:
Investments and foreign currency...................... 2,027,791 --
Written option contracts expired or closed............ (59,189) --
Net change in unrealized appreciation (depreciation) of:
Investments and foreign currency...................... (1,463,986) --
Written option contracts.............................. 7,445 --
----------- --------
Net gain on investments............................... 512,061 --
----------- --------
Net increase in net assets resulting from
operations.......................................... $ 664,102 $ --
=========== ========
+ Net of Foreign Taxes Withheld of: $ 2,001 $ --
=========== ========
</Table>
See Notes to the Financial Statements.
14
(This page intentionally left blank)
15
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS 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, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- ----------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income.................... $ 113,462 $ 249,038 $ 27,281 $ 40,760
Net realized gain (loss) on sale of
investments, foreign currency and
written option contracts expired or
closed................................. 22,484,827 21,223,728 (59,147) (885,715)
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and written options........... (28,639,911) 70,176,722 15,593 1,961,208
------------ --------------- ----------- -----------
Net increase (decrease) in net assets
resulting from operations.......... (6,041,622) 91,649,488 (16,273) 1,116,253
------------ --------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR
CLASS:
Net investment income.................... -- (740,840) -- (51,601)
Net realized gains....................... -- -- -- --
------------ --------------- ----------- -----------
Total distributions.................. -- (740,840) -- (51,601)
------------ --------------- ----------- -----------
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................ 18,183,329 1,846,929,452 630,482 4,025,363
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- 706,523 -- 50,471
Cost of shares redeemed.................. (41,667,455) (1,891,182,828) (1,026,732) (3,801,335)
------------ --------------- ----------- -----------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... (23,484,126) (43,546,853) (396,250) 274,499
------------ --------------- ----------- -----------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS A:
Proceeds from shares sold................ 20,896,073 942,552,877 N/A N/A
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- -- N/A N/A
Cost of shares redeemed.................. (18,233,509) (948,640,729) N/A N/A
------------ --------------- ----------- -----------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... 2,662,564 (6,087,852) N/A N/A
------------ --------------- ----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS... (26,863,184) 41,273,943 (412,523) 1,339,151
NET ASSETS:
Beginning of period...................... 231,398,730 190,124,787 4,677,117 3,337,966
------------ --------------- ----------- -----------
End of period*........................... $204,535,546 $ 231,398,730 $ 4,264,594 $ 4,677,117
============ =============== =========== ===========
</Table>
See Notes to the Financial Statements.
16
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS 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, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- ----------------------------------------------------------------------------------------------------------
*Including undistributed net investment
income (loss) of:........................ $ (271,359) $ (386,164) $ 14,439 $ (12,842)
------------ --------------- ----------- -----------
CHANGES IN SHARES OUTSTANDING -- INVESTOR
CLASS:
Shares sold.............................. 778,381 102,931,421 145,148 963,359
Shares issued in reinvestment of
dividends and distributions............ -- 30,440 -- 11,765
Shares redeemed.......................... (1,803,737) (104,412,740) (241,556) (913,077)
------------ --------------- ----------- -----------
Net increase (decrease) in shares
outstanding........................ (1,025,356) (1,450,879) (96,408) 62,047
============ =============== =========== ===========
CHANGES IN SHARES OUTSTANDING --
CLASS A:
Shares sold.............................. 941,284 50,261,575
Shares issued in reinvestments of
dividends and distributions............ -- --
Shares redeemed.......................... (828,159) (50,273,636)
------------ ---------------
Net decrease in shares outstanding..... 113,125 (12,061)
============ ===============
</Table>
See Notes to the Financial Statements.
17
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS 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, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)............. $ (268,507) $ 278,426 $ (114,083) (405,563)
Net realized gain (loss) on sale of
investments, foreign currency and
written option contracts expired or
closed................................. 4,388,042 453,544 324,253 (147,989)
Net change in unrealized appreciation
(depreciation) of investments, foreign
currency and written options........... (2,861,468) 12,195,026 (42,965) 5,625,536
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from operations.......... 1,258,067 12,926,996 167,205 5,071,984
------------ ------------ ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- INVESTOR CLASS:
Net investment income.................... -- (207,871) -- --
Net realized gain........................ -- -- -- --
------------ ------------ ----------- ------------
Total distributions.................. -- (207,871) -- --
------------ ------------ ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- ADVISOR CLASS A:
Net investment income.................... -- (26,269) -- --
Net realized gain........................ -- -- -- --
------------ ------------ ----------- ------------
Total distributions.................. -- (26,269) -- --
------------ ------------ ----------- ------------
DISTRIBUTIONS TO
SHAREHOLDERS -- ADVISOR CLASS C:
Net investment income.................... -- (1,630) N/A N/A
Net realized gain........................ -- -- N/A N/A
------------ ------------ ----------- ------------
Total distributions.................. -- (1,630) N/A N/A
------------ ------------ ----------- ------------
CAPITAL SHARE TRANSACTIONS -- INVESTOR
CLASS:
Proceeds from shares sold................ 17,057,593 68,328,542 1,710,992 69,080,033
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- 205,494 -- --
Cost of shares redeemed.................. (29,452,702) (24,689,332) (4,329,630) (72,786,711)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... (12,395,109) 43,844,704 (2,618,638) (3,706,678)
------------ ------------ ----------- ------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS A:
Proceeds from shares sold................ 6,763,281 34,835,040 117,497 70,038,917
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- 23,597 -- --
Cost of shares redeemed.................. (1,634,660) (30,227,020) (193,674) (70,349,535)
------------ ------------ ----------- ------------
Net increase (decrease) in net assets
resulting from capital share
transactions....................... 5,128,621 4,631,617 (76,177) (310,618)
------------ ------------ ----------- ------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR
CLASS C:
Proceeds from shares sold................ 2,792,559 1,455,581 N/A N/A
Proceeds from shares issued to holders in
reinvestment of dividends.............. -- 1,630 N/A N/A
Cost of shares redeemed.................. (377,906) (201,775) N/A N/A
------------ ------------ ----------- ------------
Net increase in net assets resulting
from capital share transactions.... 2,414,653 1,255,436 N/A N/A
------------ ------------ ----------- ------------
</Table>
See Notes to the Financial Statements.
18
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS 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, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- -------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS... $ (3,593,768) $62,422,983 $(2,527,610) $ 1,054,688
NET ASSETS:
Beginning of period...................... 72,928,127 10,505,144 24,453,569 23,398,881
------------ ------------ ----------- ------------
End of period*........................... $ 69,334,359 $72,928,127 $21,925,959 $ 24,453,569
============ ============ =========== ============
*Including undistributed net investment
income (loss) of:........................ $ (226,993) $ 41,514 $ (114,083) $ --
------------ ------------ ----------- ------------
CHANGES IN SHARES
OUTSTANDING -- INVESTOR CLASS:
Shares sold.............................. 1,131,328 5,606,562 106,469 5,058,583
Shares issued in reinvestment of
dividends and distributions............ -- 13,875 -- --
Shares redeemed.......................... (1,963,673) (2,251,480) (273,328) (5,323,297)
------------ ------------ ----------- ------------
Net increase (decrease) in shares
outstanding........................ (832,345) 3,368,957 (166,859) (264,714)
============ ============ =========== ============
CHANGES IN SHARES OUTSTANDING -- CLASS A:
Shares sold.............................. 452,679 2,875,038 7,492 4,954,616
Shares issued in reinvestment of
dividends and distributions............ -- 1,602 -- --
Shares redeemed.......................... (109,794) (2,479,771) (12,254) (4,968,579)
------------ ------------ ----------- ------------
Net increase (decrease) in shares
outstanding........................ 342,885 396,869 (4,762) (13,963)
============ ============ =========== ============
CHANGES IN SHARES OUTSTANDING -- CLASS C:
Shares sold.............................. 188,275 111,607
Shares issued on reinvestment of
dividends and distributions............ -- 111
Shares redeemed.......................... (25,752) (19,082)
------------ ------------
Net increase in shares outstanding... 162,523 92,636
============ ============
</Table>
See Notes to the Financial Statements.
19
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES FUND
-----------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income.................................. $ 152,041 $ 385,241
Net realized gain on sale of investments, foreign
currency and written option contracts expired or
closed............................................... 1,968,602 1,510,246
Net change in unrealized appreciation (depreciation) of
investments, foreign currency and written options.... (1,456,541) 5,901,833
------------ -------------
Net increase in net assets resulting from
operations....................................... 664,102 7,797,320
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR CLASS:
Net investment income.................................. -- (248,072)
Net realized gains..................................... -- --
------------ -------------
Total distributions................................ -- (248,072)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A:
Net investment income.................................. -- (18,348)
Net realized gains..................................... -- --
------------ -------------
Total distributions................................ -- (18,348)
------------ -------------
CAPITAL SHARE TRANSACTIONS -- INVESTOR CLASS:
Proceeds from shares sold.............................. 21,469,774 232,755,111
Proceeds from shares issued to holders in reinvestment
of dividends......................................... -- 243,061
Cost of shares redeemed................................ (27,445,488) (219,683,170)
------------ -------------
Net increase (decrease) in net assets resulting
from capital share transactions.................. (5,975,714) 13,315,002
------------ -------------
CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A:
Proceeds from shares sold.............................. 783,980 1,940,577
Proceeds from shares issued to holders in reinvestment
of dividends......................................... -- 17,723
Cost of shares redeemed................................ (647,731) (549,149)
------------ -------------
Net increase in net assets resulting from capital
share transactions............................... 136,249 1,409,151
------------ -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS.................. (5,175,363) 22,255,053
NET ASSETS:
Beginning of period...................................... 25,740,061 3,485,008
------------ -------------
End of period*........................................... $ 20,564,698 $ 25,740,061
============ =============
*Including undistributed net investment income of:....... $ 232,287 $ 80,247
------------ -------------
CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS:
Shares sold............................................ 1,301,345 20,391,400
Shares issued in reinvestment of dividends and
distributions........................................ -- 14,633
Shares redeemed........................................ (1,660,272) (19,305,578)
------------ -------------
Net increase (decrease) in shares outstanding...... (358,927) 1,100,455
============ =============
</Table>
See Notes to the Financial Statements.
20
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS -- (CONTINUED)
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES FUND
-----------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
- ----------------------------------------------------------------------------------------
CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A:
Shares sold............................................ 48,040 148,435
Shares issued in reinvestment of dividends and
distributions........................................ -- 1,070
Shares redeemed........................................ (39,036) (40,961)
------------ -------------
Net increase in shares outstanding................. 9,004 108,544
============ =============
</Table>
See Notes to the Financial Statements.
21
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE KINETICS GOVERNMENT
MONEY MARKET FUND
-------------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income................................. $ -- $ --
------------ ---------------
Net increase in net assets resulting from
operations...................................... -- --
------------ ---------------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income................................. -- --
Net realized gain on securities transactions.......... -- --
------------ ---------------
Total dividends and distributions................. -- --
------------ ---------------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from shares sold......................... 20,339,861 3,078,985,978
Reinvestment of distributions......................... -- --
Cost of shares redeemed............................... (20,652,335) (3,204,595,312)
------------ ---------------
Net increase (decrease) in net assets from capital
share transactions.............................. (312,474) (125,609,334)
------------ ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS................. (312,474) (125,609,334)
NET ASSETS:
Beginning of period................................... 3,047,714 128,657,048
------------ ---------------
End of period*........................................ $ 2,735,240 $ 3,047,714
============ ===============
*Including undistributed net investment income of:...... $ -- $ --
============ ===============
CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS:
Shares sold........................................... 20,339,861 3,078,985,978
Shares issued in reinvestment of dividends and
distributions....................................... -- --
Shares redeemed....................................... (20,652,335) (3,204,595,312)
------------ ---------------
Net increase (decrease) in shares outstanding..... (312,474) (125,609,334)
============ ===============
</Table>
See Notes to the Financial Statements.
22
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (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, 2004 is as follows:
<Table>
<Caption>
INTEREST IN
MASTER PORTFOLIO
----------------
Internet Fund......................................... 99.997%
Emerging Fund......................................... 99.863%
Paradigm Fund......................................... 99.975%
Medical Fund.......................................... 99.953%
Small Cap Fund........................................ 99.918%
Government Fund....................................... 99.072%
</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, 2004 (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 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 on
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 amortized
24
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
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, 2004, The Internet Portfolio held one such
security which represented 0.71% of the Portfolio's net assets.
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 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
25
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
obligation for put options or the market value of the instrument underlying the
contract for call options.
FOREIGN CURRENCY TRANSLATIONS
The books and records of the Master Portfolios are maintained in U.S. dollars.
For the Master Portfolios, foreign currency transactions are translated into
U.S. dollars on the following basis: (i) market values of investment securities
and other assets and liabilities are translated at the exchange rate of such
currencies against the U.S. dollar, as provided by an approved pricing service,
and (ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing on the
respective dates of such transactions. The Master Portfolios do not isolate and
treat as ordinary income that portion of the results of operations arising as a
result of changes in the exchange rate from the fluctuations arising from
changes in the market prices of securities held during the period. However, for
federal income tax purposes, the Master Portfolios do isolate and treat as
ordinary income the effect of changes in foreign exchange rates arising from
actual foreign currency transactions and the effect of changes in foreign
exchange rates arising between trade date and settlement date.
RESTRICTED SECURITIES
The Master Portfolios may invest in restricted securities. These securities are
valued by the Master Portfolios after giving due consideration to pertinent
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, 2004, the Master Portfolios
did not hold any investment securities which were determined to be illiquid
pursuant to the guidelines adopted by the Board of Trustees.
WHEN-ISSUED SECURITIES
The Master Portfolios may purchase securities on a when-issued or delayed
delivery basis. Although the purchase amounts of these securities are
established at the time the purchaser enters into the agreement, these
securities may be delivered and paid for at a future date. The Master Portfolios
record purchases of when-issued securities and reflect the values of such
securities in determining net asset value in the same manner as other portfolio
securities. The Master Portfolios maintain at all times cash or other liquid
assets in an amount at least equal to the amount of outstanding commitments for
when-issued securities.
26
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (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 with respect to no more than 33 1/3% of
the total assets of each Portfolio (including any collateral posted) or 50% of
the total assets of each Portfolio (excluding any collateral posted). Securities
lending and repurchase transactions will be fully collateralized at all times
with cash and/or short-term debt obligations. The Master Portfolios receive
interest on the collateral received as well as a fee for the securities loaned.
EXPENSE ALLOCATION
Common expenses incurred by Feeder Funds are allocated among the Feeder Funds
(i) based upon relative average net assets, (ii) as incurred on a specific
identification basis, or (iii) equally among the Feeder Funds, depending on the
nature of the expenditure.
Each Feeder Fund records its proportionate share of the Master Portfolio's
expenses on a daily basis. In addition, each Feeder Fund accrues its own
separate expenses. Any cap on expenses includes Feeder Fund-specific expenses as
well as the expenses allocated from the Master Portfolio.
FEDERAL INCOME TAXES
Each Master Portfolio 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
27
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
shares as part of the dividends paid deduction for income tax purposes. Where
appropriate, reclassifications between capital accounts are made for such
differences that are permanent in nature.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts in the financial
statements. Actual results could differ from those estimates.
OTHER
Realized gains and losses on the sale of investments are calculated on the
identified cost basis. Dividend income is recorded on the ex-dividend date and
interest income is recognized on the accrual basis. 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 2.74% for the Internet, Emerging, Paradigm
and Small Cap Funds, and 1.25% for the Government Fund. The expense cap included
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.
28
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
Waivers and reimbursements by the Adviser in years prior to 2002 which are
subject to potential future recovery include:
<Table>
<Caption>
2001
-------
Internet.................................................... $ --
Emerging.................................................... 63,887
Paradigm.................................................... 45,940
Medical..................................................... --
Small Cap................................................... 45,787
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 certain
operating expenses as deemed appropriate. The Adviser may discontinue the
voluntary waiver at any time. For the six months ended June 30, 2004, 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.............. -- --
Annual Cap on Expenses -- Advisor Class A............. -- N/A
Expenses Reimbursed by Adviser........................ $ -- $22,468
</Table>
<Table>
<Caption>
PARADIGM MEDICAL
--------- ----------
Annual Advisory Rate.................................. 1.25% 1.25%
Annual Cap on Expenses -- Investor Class.............. -- --
Annual Cap on Expenses -- Advisor Class A............. -- --
Annual Cap on Expenses -- Advisor Class C............. -- N/A
Expenses Reimbursed by Adviser........................ $ -- $19,890
</Table>
<Table>
<Caption>
SMALL CAP GOVERNMENT
--------- ----------
Annual Advisory Rate.................................. 1.25% 0.50%
Annual Cap on Expenses -- Investor Class.............. -- --
Annual Cap on Expenses -- Advisor Class A............. -- N/A
Expenses Reimbursed by Adviser........................ $ -- $25,239
</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 that have a written
shareholder servicing agreement with the Adviser and that perform shareholder
servicing functions and maintenance of shareholder accounts on behalf of their
clients who own shares of the Feeder Funds.
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
29
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
(the "12b-1 Plans"). One Plan is for Advisor Class A shares, while the other
Plan is for Advisor Classes B and C shares. Under the first Plan, Advisor Class
A shares may pay up to an annual rate of 0.50% of the average daily net asset
value of shares to the Distributor or other qualified recipients under the Plan.
During the six months ended June 30, 2004, payments under the 12b-1 Plan for the
Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds
were limited to 0.25% of the average daily net asset value of such shares of
such Funds. During the six months ended June 30, 2004, the Advisor Class A
shares of the Internet, Paradigm, Medical and Small Cap Funds incurred expenses
of $1,349, $20,221, $920 and $2,494, respectively, pursuant to the 12b-1 Plan.
Under the second Plan, Advisor Classes B and C shares pay an annual rate of
0.75% of the average daily net asset value of such shares. During the six months
ended June 30, 2004, Paradigm Class C shares incurred expenses of $14,022,
pursuant to the 12b-1 Plan. Through December 31, 2003, the Funds had not issued
any Advisor Class B shares.
4. INCOME TAXES
At June 30, 2004, the Feeder Funds had accumulated net realized capital loss
carryovers expiring in the following years.
<Table>
<Caption>
FEEDER FUND 2011 2010 2009 2008 2007
----------- -------- ------------ ----------- ---------- ----------
Internet............. $ -- $140,178,775 $58,617,473 $ -- $7,733,691
Emerging............. 887,154 2,635,505 5,481,052 2,615,474 --
Paradigm............. -- 76,740 -- -- --
Medical.............. 284,523 2,056,578 -- -- --
Small Cap............ -- -- -- -- --
</Table>
To the extent that the Feeder Funds realize future net capital gains, those
gains will be offset by any unused capital loss carryovers. For the year ended
December 31, 2003, The Internet, Paradigm and Small Cap Funds utilized
$23,455,928, $366,486 and $1,437,670, respectively, of capital loss
carryforwards.
At June 30, 2004, the following Feeder Funds deferred, on a tax basis, post-
October losses of:
<Table>
<Caption>
FEEDER FUND POST-OCTOBER LOSSES
----------- -------------------
Internet................................................... $768,320
Emerging................................................... 40
</Table>
For the six months ended June 30, 2004, the Feeder Funds did not pay any
dividends or distributions. For the year ended December 31, 2003, the
30
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
Internet Fund paid an income dividend of $0.07471436 per share or $740,840 to
the Investor Class shares which is classified as ordinary income for tax
purposes. The Emerging Fund paid an income dividend of $0.04759165 or $51,601 to
the Investor Class shares which is classified as ordinary income for tax
purposes. The Paradigm Fund paid an income dividend of $0.05412863 or $207,871
to the Investor Class shares which is classified as ordinary income for tax
purposes. The Paradigm Fund paid an income dividend of $0.02982937 or $26,269 to
the Advisor Class A shares which is classified as ordinary income for tax
purposes. The Paradigm Fund paid an income dividend of $0.01160711 or $1,630 to
the Advisor Class C shares which is classified as ordinary income for tax
purposes. The Small Cap Opportunities Fund paid an income dividend of
$0.16808514 or $248,072 to the Investor Class shares which is classified as
ordinary income for tax purposes. The Small Cap Opportunities Fund paid an
income dividend of $0.14844824 or $18,348 to the Advisor Class A shares.
The tax components of dividends paid during the years ended December 31, 2003
and December 31, 2002, are:
<Table>
<Caption>
INTERNET EMERGING
----------------------------- -----------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------ ------------- ------------ -------------
2003...................... $740,840 $-- $51,601 $--
2002...................... $ -- $-- $ -- $--
</Table>
<Table>
<Caption>
PARADIGM MEDICAL
----------------------------- -----------------------------
ORDINARY LONG-TERM ORDINARY LONG-TERM
INCOME CAPITAL GAINS INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION
------------ ------------- ------------ -------------
2003...................... $235,770 $-- $ -- $ --
2002...................... $ -- $-- $59,028 $75,306
</Table>
<Table>
<Caption>
SMALL CAP
-----------------------------
ORDINARY LONG-TERM
INCOME CAPITAL GAINS
DISTRIBUTION DISTRIBUTION
------------ -------------
2003................................................ $266,420 $--
2002................................................ $ 37,861 $--
</Table>
The following information is presented on an income tax basis as of December 31,
2003.
<Table>
<Caption>
INTERNET EMERGING PARADIGM MEDICAL SMALL CAP
-------- -------- -------- ------- ---------
Distributable ordinary
income...................... $560,268 $9,543 $103,492 $-- $80,297
Distributable long-term
gains....................... $ -- $ -- $ -- $-- $ --
</Table>
31
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
The Internet, Emerging, Paradigm and Small Cap Funds designate 27%, 11%, 94% and
8%, respectively, of dividends declared after December 31, 2003 from net
investment income as qualified dividend income under the Jobs and Growth Tax
Relief Reconciliation Act of 2003 (unaudited).
The Small Cap Fund hereby designates $11,703 as long-term capital gain
distributions for the purposes of the dividends paid deduction, which include
earnings and profits distributed to shareholders on redemptions of Fund shares
(unaudited).
For corporate shareholders in the Funds, the percentage of ordinary dividend
income distributed for the year ended December 31, 2003, which is designated as
qualifying for the dividends-received deduction, is as follows: Internet 25.3%,
Emerging 7.7%, Paradigm 52.7% and Small Cap 6.5% (unaudited).
5. ADDITIONAL INFORMATION
PricewaterhouseCoopers LLP ("PWC") was replaced as the auditors to Kinetics
Mutual Funds, Inc. (the "Company") effective April 22, 2004. The Company's Audit
Committee participated in and approved the decision to change auditors. PwC's
reports on the Company's financial statements for the fiscal years ended
December 31, 2003 and December 31, 2002 contained no adverse opinion or
disclaimer of opinion nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's fiscal years ended
December 31, 2003 and December 31, 2002 and through April 22, 2004, (i) there
were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused it
to make reference to the subject matter of the disagreements in connection with
its reports on the Company's financial statements for such years, and (ii) there
were no "reportable events" of the kind described in Item 304(a)(1)(v) of
Regulation S-K under the Securities Exchange Act of 1934, as amended.
On April 22, 2004, the Company by action of its Board of Directors upon the
recommendation of the Company's Audit Committee engaged Tait, Weller & Baker as
the independent registered public accounting firm to audit the Company's
financial statements for the fiscal year ending December 31, 2004. During the
Company's fiscal years ended December 31, 2003 and December 31, 2002 and through
April 22, 2004, neither the Company, its portfolios nor anyone on their behalf
has consulted Tait, Weller & Baker on
32
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
items which (i) concerned the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company's financial statements or (ii)
concerned the subject of a disagreement (as defined in paragraph (a)(1)(iv) of
Item 304 of Regulation S-K) or reportable events (as described in paragraph
(a)(1)(v) of said Item 304).
33
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE INTERNET FUND
----------------------------------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS
SIX MONTHS SIX MONTHS INVESTOR CLASS ADVISOR CLASS A
ENDED ENDED FOR THE FOR THE
JUNE 30, JUNE 30, YEAR ENDED YEAR ENDED
2004 2004 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2003 2003
-------------- ------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value,
Beginning of Period.............. $ 23.31 $22.88 $ 16.69 $16.47
-------- ------ -------- ------
Income from Investment Operations:
Net investment income (loss)..... 0.01(6) (0.02)(6) 0.03 (0.82)
Net realized and unrealized gain
(loss) on investments.......... (0.63) (0.58) 6.66 7.23
-------- ------ -------- ------
Total gain (loss) from
investment operations....... (0.62) (0.60) 6.69 6.41
-------- ------ -------- ------
Less Distributions:
From net investment income....... -- -- (0.07) --
From net realized gains.......... -- -- -- --
-------- ------ -------- ------
Total distributions.......... -- -- (0.07) --
-------- ------ -------- ------
Net Asset Value, End of Period..... $ 22.69 $22.28 $ 23.31 $22.88
======== ====== ======== ======
Total Return(5).................... (2.66)%(1) (2.62)%(1) 40.11% 38.92%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's).......................... $201,598 $2,938 $230,971 $ 428
Ratio of expenses to average net
assets:
Before expense reimbursement... 2.38%(2) 2.63%(2) 2.39% 2.64%
After expense reimbursement.... 2.38%(2) 2.63%(2) 2.39% 2.64%
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement... 0.09%(2) (0.16)%(2) 0.11% (0.14)%
After expense reimbursement.... 0.09%(2) (0.16)%(2) 0.11% (0.14)%
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.
34
<Table>
<Caption>
THE INTERNET FUND
- ----------------------------------------------------------------------------------------------------------------------------------
ADVISOR CLASS A
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS APRIL 26, INVESTOR CLASS INVESTOR CLASS
FOR THE FOR THE FOR THE 2001(+) FOR THE FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2002 2001 2001 2000 1999
-------------- --------------- -------------- --------------- -------------- ---------------
$ 21.80 $21.75 $ 24.12 $23.50 $ 49.73 $ 15.72
-------- ------ -------- ------ -------- ----------
(0.08)(6) (0.12)(6) (0.17) (0.12)(6) (0.76) (0.30)
(5.03) (5.16) (2.15) (1.63) (24.85) 34.33
-------- ------ -------- ------ -------- ----------
(5.11) (5.28) (2.32) (1.75) (25.61) 34.03
-------- ------ -------- ------ -------- ----------
-- -- -- -- -- --
-- -- -- -- -- (0.02)
-------- ------ -------- ------ -------- ----------
-- -- -- -- -- (0.02)
-------- ------ -------- ------ -------- ----------
$ 16.69 $16.47 $ 21.80 $21.75 $ 24.12 $ 49.73
======== ====== ======== ====== ======== ==========
(23.44)% (24.28)% (9.62)% (7.45)%(1) (51.50)% 216.50%
$189,618 $ 507 $297,793 $ 975 $432,978 $1,163,097
2.42% 2.67% 2.37% 2.62%(2) 2.06% 2.00%
2.42% 2.67% 2.37% 2.62%(2) 2.00% 2.00%
(0.41)% (0.66)% (0.61)% (0.86)%(2) (1.49)% (1.29)%
(0.41)% (0.66)% (0.61)% (0.86)%(2) (1.43)% (1.29)%
N/A N/A N/A N/A 21%(4) 89%
</Table>
See Notes to the Financial Statements.
35
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE INTERNET
EMERGING GROWTH FUND
-----------------------------------------------------------------------
SIX MONTHS
ENDED FOR THE FOR THE FOR THE FOR THE
JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2003 2002 2001 2000
----------- ------------ ------------ ------------ ------------
PER SHARE DATA(1)
Net Asset Value,
Beginning of Period......... $ 4.28 $ 3.24 $ 4.30 $ 3.69 $10.00
------ ------ ------ ------ ------
Income from Investment
Operations:
Net investment income
(loss).................... 0.04 0.04 (0.08) (0.03) (0.03)
Net realized and unrealized
gain (loss) on
investments............... (0.04) 1.05 (0.98) 0.64 (6.28)
------ ------ ------ ------ ------
Total gain (loss) from
investment
operations............ 0.00(3) 1.09 (1.06) 0.61 (6.31)
------ ------ ------ ------ ------
Less Distributions:
From net investment
income.................... -- (0.05) -- -- --
From net realized gains..... -- -- -- -- --
------ ------ ------ ------ ------
Total distributions..... -- (0.05) -- -- --
------ ------ ------ ------ ------
Net Asset Value, End of
Period...................... $ 4.28 $ 4.28 $ 3.24 $ 4.30 $ 3.69
====== ====== ====== ====== ======
Total Return.................. 0.00%(4) 33.56% (24.65)% 16.53% (63.10)%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's)..................... $4,265 $4,677 $3,338 $5,277 $4,378
Ratio of expenses to average
net assets:
Before expense
reimbursement........... 3.74%(5) 3.64% 3.78% 4.17% 3.33%
After expense
reimbursement........... 2.74%(5) 2.74% 2.74% 2.74% 2.00%
Ratio of net investment income
(loss) to average net
assets:
Before expense
reimbursement........... 0.22%(5) 0.11% (3.03)% (2.09)% (1.76)%
After expense
reimbursement........... 1.22%(5) 1.01% (1.99)% (0.66)% (0.43)%
Portfolio turnover rate....... N/A 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) The amount is less than $0.005 per share.
(4) Not Annualized.
(5) Annualized.
See Notes to the Financial Statements.
36
(This page intentionally left blank)
37
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, 2004 JUNE 30, 2004 JUNE 30, 2004
(UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- --------------- ---------------
PER SHARE DATA(1)
Net Asset Value,
Beginning of Period.............. $ 14.91 $ 14.82 $14.73
------- ------- ------
Income from Investment Operations:
Net investment income (loss)..... (0.09) (0.06) (0.09)
Net realized and unrealized gain
(loss) on investments.......... 0.39 0.35 0.34
------- ------- ------
Total gain (loss) from
investment operations..... 0.30 0.29 0.25
------- ------- ------
Less Distributions:
From net investment income....... -- -- --
From net realized gains.......... -- -- --
------- ------- ------
Total distributions......... -- -- --
------- ------- ------
Net Asset Value, End of Period..... $ 15.21 $ 15.11 $14.98
======= ======= ======
Total Return(6).................... 2.01%(4) 1.96%(4) 1.70%(4)
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's).......................... $46,155 $18,585 $4,594
Ratio of expenses to average net
assets:
Before expense reimbursement... 2.18%(5) 2.43%(5) 2.93%(5)
After expense reimbursement.... 2.18%(5) 2.43%(5) 2.93%(5)
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement... (0.65)%(5) (0.90)%(5) (1.40)%(5)
After expense reimbursement.... (0.65)%(5) (0.90)%(5) (1.40)%(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.
38
<Table>
<Caption>
THE PARADIGM FUND
----------------------------------------------------------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C
FOR THE FOR THE FOR THE FOR THE FOR THE JUNE 28, 2002 (+)
YEAR ENDED YEAR ENDED YEAR ENDED (+) YEAR ENDED YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2003 2003 2002 2002 2002
-------------- --------------- --------------- -------------- ---------------- -----------------
$ 10.12 $ 10.07 $10.05 $10.61 $10.58 $10.64
------- ------- ------ ------ ------ ------
0.05 0.08 0.02 (0.14) (0.17) (0.11)
4.79 4.70 4.67 (0.35) (0.34) (0.48)
------- ------- ------ ------ ------ ------
4.84 4.78 4.69 (0.49) (0.51) (0.59)
------- ------- ------ ------ ------ ------
(0.05) (0.03) (0.01) -- -- --
-- -- -- -- -- --
------- ------- ------ ------ ------ ------
(0.05) (0.03) (0.01) -- -- --
------- ------- ------ ------ ------ ------
$ 14.91 $ 14.82 $14.73 $10.12 $10.07 $10.05
======= ======= ====== ====== ====== ======
47.87% 47.47% 46.68% (4.62)% (4.82)% (5.55)(4)
$57,646 $13,157 $2,125 $5,044 $4,943 $ 519
2.24% 2.49% 2.99% 2.97% 3.22% 3.72%(5)
1.74% 1.99% 2.49% 2.74% 2.99% 3.49%(5)
0.57% 0.32% (0.18)% (1.61)% (1.86)% (2.36)%(5)
1.07% 0.82% 0.32% (1.38)% (1.63)% (2.13)%(5)
N/A N/A N/A N/A N/A N/A
</Table>
See Notes to the Financial Statements.
39
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE PARADIGM FUND
------------------------------------------------------
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS
FOR THE APRIL 26, 2001(+) FOR THE
YEAR ENDED THROUGH YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2001 2000
-------------- ----------------- ---------------
PER SHARE DATA(1)
Net Asset Value,
Beginning of Period.............. $10.40 $10.42 $10.00
------ ------ ------
Income from Investment Operations:
Net investment income (loss)..... (0.13) (0.10)(7) (0.00)(3)
Net realized and unrealized gain
(loss) on investments.......... 0.34 0.26 0.40
------ ------ ------
Total gain (loss) from
investment operations..... 0.21 0.16 0.40
------ ------ ------
Less Distributions:
From net investment income....... -- -- --
From net realized gains.......... -- -- --
------ ------ ------
Total distributions......... -- -- --
------ ------ ------
Net Asset Value, End of Period..... $10.61 $10.58 $10.40
====== ====== ======
Total Return(6).................... 2.02% 1.54%(4) 4.00%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's).......................... $4,817 $4,091 $3,803
Ratio of expenses to average net
assets:
Before expense reimbursement... 3.47% 3.72%(5) 4.96%
After expense reimbursement.... 2.74% 2.99%(5) 2.00%
Ratio of net investment income
(loss) to average net assets:
Before expense reimbursement... (1.91)% (2.16)%(5) (3.02)%
After expense reimbursement.... (1.18)% (1.43)%(5) (0.06)%
Portfolio turnover rate............ N/A N/A 5%(2)
</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.
40
(This page intentionally left blank)
41
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE MEDICAL 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, 2004 JUNE 30, 2004 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2003 2003
-------------- --------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value, Beginning of
Period............................. $ 15.67 $15.47 $ 12.72 $12.61
------- ------ ------- ------
Income from Investment Operations:
Net investment loss................ (0.08) (0.10) (0.25) (0.63)
Net realized and unrealized gain
(loss) on investments............ 0.20 0.19 3.20 3.49
------- ------ ------- ------
Total gain (loss) from
investment operations........ 0.12 0.09 2.95 2.86
------- ------ ------- ------
Less Distributions:
From net investment income......... -- -- -- --
From net realized gains............ -- -- -- --
------- ------ ------- ------
Total distributions............ -- -- -- --
------- ------ ------- ------
Net Asset Value, End of Period....... $ 15.79 $15.56 $ 15.67 $15.47
======= ====== ======= ======
Total Return(5)...................... 0.77%(1) 0.58%(1) 23.19% 22.68%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's).... $21,237 $ 689 $23,695 $ 758
Ratio of expenses to average net
assets:
Before expense reimbursement..... 2.65%(2) 2.90%(2) 2.52% 2.77%
After expense reimbursement...... 2.48%(2) 2.73%(2) 2.52% 2.77%
Ratio of net investment loss to
average net assets:
Before expense reimbursement..... (1.13)%(2) (1.38)%(2) (1.55)% (1.80)%
After expense reimbursement...... (0.96)%(2) (1.21)%(2) (1.55)% (1.80)%
Portfolio turnover rate.............. 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.
42
<Table>
<Caption>
THE MEDICAL FUND
-----------------------------------------------------------------------------------------------------------------------
INVESTOR CLASS
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS SEPTEMBER 30,
FOR THE FOR THE FOR THE APRIL 26, 2001(+) FOR THE 1999(+)
YEAR ENDED YEAR ENDED YEAR ENDED THROUGH YEAR ENDED THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2002 2001 2001 2000 1999
-------------- --------------- -------------- ----------------- -------------- --------------
$ 18.06 $18.01 $ 20.98 $18.24 $ 13.35 $10.00
------- ------ ------- ------ ------- ------
(0.21) (0.24) (0.25) (0.17)(6) (0.15) (0.02)
(5.05) (5.08) (2.64) (0.03) 7.78 3.37
------- ------ ------- ------ ------- ------
(5.26) (5.32) (2.89) (0.20) 7.63 3.35
------- ------ ------- ------ ------- ------
-- -- -- -- -- --
(0.08) (0.08) (0.03) (0.03) -- --
------- ------ ------- ------ ------- ------
(0.08) (0.08) (0.03) (0.03) -- --
------- ------ ------- ------ ------- ------
$ 12.72 $12.61 $ 18.06 $18.01 $ 20.98 $13.35
======= ====== ======= ====== ======= ======
(29.14)% (29.56)% (13.77)% (1.09)%(1) 57.15% 33.50%(1)
$22,604 $ 794 $40,416 $1,203 $63,314 $6,944
2.55% 2.80% 2.28% 2.53%(2) 2.21% 5.99%(2)
2.55% 2.80% 2.28% 2.53%(2) 2.00% 2.00%(2)
(1.49)% (1.74)% (1.17)% (1.42)%(2) (1.24)% (5.24)%(2)
(1.49)% (1.74)% (1.17)% (1.42)%(2) (1.03)% (1.25)%(2)
N/A N/A N/A N/A 1%(4) 1%
</Table>
See Notes to the Financial Statements.
43
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES 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, 2004 JUNE 30, 2004 DECEMBER 31, DECEMBER 31,
(UNAUDITED) (UNAUDITED) 2003 2003
-------------- --------------- -------------- ---------------
PER SHARE DATA(3)
Net Asset Value,
Beginning of Period................ $ 16.55 $16.50 $ 10.04 $10.03
------- ------ ------- ------
Income from Investment Operations:
Net investment income (loss)....... 0.15(6) 0.12(6) 0.25 0.15
Net realized and unrealized gain
(loss) on investments............ 0.36 0.37 6.43 6.47
------- ------ ------- ------
Total gain (loss) from
investment operations........ 0.51 0.49 6.68 6.62
------- ------ ------- ------
Less Distributions:
From net investment income......... -- -- (0.17) (0.15)
From net realized gains............ -- -- -- --
------- ------ ------- ------
Total distributions............ -- -- (0.17) (0.15)
------- ------ ------- ------
Net Asset Value, End of Period....... $ 17.06 $16.99 $ 16.55 $16.50
======= ====== ======= ======
Total Return(5)...................... 3.08%(1) 2.97%(1) 66.51% 65.98%
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period (000's).... $21,237 $2,290 $23,665 $2,075
Ratio of expenses to average net
assets:
Before expense reimbursement..... 2.26%(2) 2.51%(2) 2.34% 2.59%
After expense reimbursement...... 2.26%(2) 2.51%(2) 2.34% 2.59%
Ratio of net investment income (loss)
to average net assets:
Before expense reimbursement..... 1.68%(2) 1.43%(2) 2.14% 1.89%
After expense reimbursement...... 1.68%(2) 1.43%(2) 2.14% 1.89%
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.
44
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES FUND
-------------------------------------------------------------------------------------------
INVESTOR CLASS
INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS MARCH 20,
FOR THE FOR THE FOR THE 2000(+)
YEAR ENDED YEAR ENDED YEAR ENDED ADVISOR CLASS A THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2002 2002 2001 2001(+) 2000
-------------- --------------- -------------- --------------- --------------
$14.50 $14.50 $11.10 $14.50 $10.00
------ ------ ------ ------ ------
(0.18)(6) (0.20)(6) (0.19)(6) -- (0.00)(7)
(4.21) (4.20) 3.59 -- 1.10
------ ------ ------ ------ ------
(4.39) (4.40) 3.40 -- 1.10
------ ------ ------ ------ ------
-- -- -- -- --
(0.07) (0.07) -- -- --
------ ------ ------ ------ ------
(0.07) (0.07) -- -- --
------ ------ ------ ------ ------
$10.04 $10.03 $14.50 $14.50 $11.10
====== ====== ====== ====== ======
(30.28)% (30.35)% 30.63% 0.00%(1) 11.00%(1)
$3,313 $ 172 $9,266 $ 1 $ 517
2.95% 3.20% 3.73% N/A 24.50%(2)
2.74% 2.99% 2.74% N/A 2.00%(2)
(1.59)% (1.84)% (2.37)% N/A (22.59)%(2)
(1.38)% (1.63)% (1.38)% N/A (0.09)%(2)
N/A N/A N/A N/A 8%(4)
</Table>
See Notes to the Financial Statements.
45
KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS
FINANCIAL HIGHLIGHTS
<Table>
<Caption>
THE KINETICS GOVERNMENT MONEY MARKET FUND
-------------------------------------------------------------------------
FEBRUARY 3,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, 2004 DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
(UNAUDITED) 2003 2002 2001 2000
------------- ------------ ------------ ------------ ------------
PER SHARE DATA(3)
Net Asset Value, Beginning of
Period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ -------- ------- -------
Income from Investment
Operations:
Net investment income......... -- -- 0.00(4) 0.02 0.04
Net realized and unrealized
gain 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 $ 1.00
====== ====== ======== ======= =======
Total Return.................... 0.00%(1) 0.00% 0.22% 2.36% 4.20%(1)
SUPPLEMENTAL DATA AND RATIOS
Net assets, end of period
(000's)....................... $2,735 $3,048 $128,657 $94,886 $21,532
Ratio of expenses to average net
assets:
Before expense
reimbursement............. 2.66%(2) 1.32% 1.29% 1.35% 1.43%(2)
After expense
reimbursement............. 0.76%(2) 0.94% 1.23% 1.24% 1.25%(2)
Ratio of net investment income
(loss) to average net assets:
Before expense
reimbursement............. (1.90)%(2) (0.38)% 0.13% 2.12% 4.61%(2)
After expense
reimbursement............. 0.00%(2) 0.00% 0.19% 2.23% 4.79%(2)
Portfolio turnover rate......... N/A 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.
46
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 61.96%+ SHARES VALUE
- ------------------------------------------------------------------------
ACCESS/BROADBAND -- 5.54%+
PrimaCom AG ADR*......................... 610,000 $ 463,600
UnitedGlobalCom, Inc. -- Class A*(2)..... 1,500,000 10,890,000
------------
11,353,600
------------
BUSINESS SERVICES -- 9.18%+
eSPEED, Inc. -- Class A*................. 100,000 1,765,000
Greg Manning Auctions, Inc.*............. 144,000 2,203,200
Kroll, Inc.*............................. 360,000 13,276,800
Ritchie Bros. Auctioneers Incorporated... 54,000 1,571,940
------------
18,816,940
------------
CELLULAR TELECOM SERVICES -- 0.37%+
China Mobile Limited ADR................. 50,000 758,000
------------
COMPUTER HARDWARE/SOFTWARE -- 2.46%+
Comdisco Holding Company, Inc.*(2)....... 194,400 5,054,400
------------
COMPUTER SERVICES -- 6.06%+
Anteon International Corporation*........ 24,000 782,880
CACI International, Inc. -- Class A*..... 248,000 10,029,120
ManTech International Corporation --
Class A*............................... 72,000 1,351,440
SunGard Data Systems, Inc.*.............. 10,000 260,000
------------
12,423,440
------------
CONSULTING SERVICES -- 0.40%+
FTI Consulting, Inc.*(2)................. 50,000 825,000
------------
E-BUSINESS SERVICES -- 4.49%+
Harris Interactive, Inc.*................ 1,080,000 7,257,600
NetRatings, Inc.*........................ 120,000 1,954,800
------------
9,212,400
------------
E-COMMERCE -- 10.32%+
CheckFree Corporation*................... 40,000 12,000,000
eBay, Inc.*(1)........................... 36,000 3,310,200
Getty Images, Inc.*...................... 32,900 1,974,000
MarketWatch.com, Inc.*................... 244,000 2,862,120
WebMD Corporation*(1).................... 109,000 1,015,880
------------
21,162,200
------------
</Table>
See Notes to the Financial Statements.
47
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
HOLDING COMPANY -- 7.62%+
GroupeBruxelles Lambert S.A.............. 50,000 $ 3,196,748
Leucadia National Corporation............ 250,000 12,425,000
------------
15,621,748
------------
INFRASTRUCTURE -- 3.12%+
Lynch Interactive Corporation*........... 185,000 6,388,975
Sunshine PCS Corporation -- Class A*..... 149,890 14,240
------------
6,403,215
------------
MEDIA CONTENT -- 10.11%+
Marvel Enterprises, Inc.*................ 322 6,285
The E.W. Scripps Company................. 800 84,000
The Washington Post Company -- Class B... 22,000 20,646,222
------------
20,736,507
------------
SCHOOLS -- 1.20%+
University of Phoenix Online*............ 28,000 2,452,520
------------
WIRELESS INFRASTRUCTURE -- 1.09%+
QUALCOMM, Inc. .......................... 8,000 583,840
Research In Motion Limited*.............. 24,000 1,642,800
------------
2,226,640
------------
TOTAL COMMON STOCKS
(cost $132,889,519).................... 127,046,610
------------
<Caption>
PREFERRED STOCKS -- 3.24%+
- ------------------------------------------------------------------------
CABLE TELEVISION PROVIDER -- 0.16%+
Adelphia Communications Corporation --
Series E, Conv, 7.500%, 11/15/2004
(Default Effective 8/15/2002)*......... 190,000 324,900
------------
E-COMMERCE -- 3.08%+
InterActiveCorp -- Series A, Conv,
1.990%, 2/4/2022....................... 108,104 6,324,084
------------
TOTAL PREFERRED STOCKS
(cost $5,721,979)...................... 6,648,984
------------
</Table>
See Notes to the Financial Statements.
48
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
CORPORATE BONDS -- 1.99%+ AMOUNT VALUE
- ------------------------------------------------------------------------
ACCESS/BROADBAND -- 0.71%+
UnitedGlobalCom, Inc., CLB, 10.750%,
2/15/2008 (Default Effective
10/16/2003)*(+)++...................... $ 2,000,000 $ 1,462,500
------------
INTERNET TECHNOLOGY INFRASTRUCTURE --
1.28%+
Level 3 Communications, Inc., CLB,
0.000%, 3/15/2010*(+)(2)............... 3,600,000 2,628,000
------------
TOTAL CORPORATE BONDS
(cost $4,716,234)...................... 4,090,500
------------
<Caption>
CORPORATE BONDS --
CONVERTIBLE -- 2.92%+
- ------------------------------------------------------------------------
CABLE TELEVISION PROVIDER -- 0.04%+
Adelphia Communications Corporation,
Conv, 6.000%, 2/15/2006 (Default
Effective 8/12/2002)*.................. 200,000 75,000
------------
INTERNET TECHNOLOGY INFRASTRUCTURE --
1.41%+
Level 3 Communications, Inc., CLB,
6.000%, 3/15/2010...................... 4,600,000 2,892,250
------------
VENTURE CAPITAL -- 1.47%+
Safeguard Scientifics, Inc., CLB, 5.000%,
6/15/2006.............................. 3,000,000 3,015,000
------------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $4,603,014)...................... 5,982,250
------------
<Caption>
RIGHTS -- 2.52%+ SHARES
- ------------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 2.52%+
Comdisco Holding Company, Inc.#*......... 12,000,699 5,160,301
------------
TOTAL RIGHTS (cost $3,161,089)........... 5,160,301
------------
</Table>
See Notes to the Financial Statements.
49
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PUT OPTIONS PURCHASED -- 0.07%+ CONTRACTS VALUE
- ------------------------------------------------------------------------
eBAY, Inc.
Expiring January 2005 at $20.00........ 100 $ 750
Expiring January 2005 at $35.00........ 50 500
------------
1,250
------------
Electronic Arts Inc.
Expiring January 2005 at $25.00........ 100 1,250
------------
Internet HOLDRs Trust
Expiring January 2006 at $60.00........ 7 5,250
------------
iShares Goldman Sachs Networking Index
Fund
Expiring September 2004 at $45.00...... 100 130,000
------------
TOTAL PUT OPTIONS
(cost $243,746)........................ 137,750
------------
<Caption>
SHORT-TERM PRINCIPAL
INVESTMENTS -- 27.83%+ AMOUNT
- ------------------------------------------------------------------------
DISCOUNT NOTES -- 27.82%+
Federal Home Loan Bank Discount Note,
1.0000%, 7/1/2004...................... $57,038,000 57,038,000
------------
INVESTMENT COMPANIES -- 0.01%+
First American Prime Obligations Fund --
Class I................................ 28,849 28,849
------------
TOTAL SHORT-TERM INVESTMENTS
(cost $57,066,849)..................... 57,066,849
------------
</Table>
See Notes to the Financial Statements.
50
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
INVESTMENTS PURCHASED
WITH CASH PROCEEDS PRINCIPAL
FROM SECURITIES AMOUNT
LENDING -- 5.35%+ OF SHARES VALUE
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.99%+
Lehman Brothers Commercial Paper,
0.000%, 7/19/2004 (Cost $2,023,086).... $ 2,023,086 $ 2,023,086
------------
MONEY MARKET FUNDS -- 1.07%+
AIM Liquid Assets
Portfolio -- Institutional Class....... 1,416,160 1,416,160
Merrill Lynch Premier Institutional
Fund................................... 785,632 785,632
------------
TOTAL MONEY MARKET FUNDS
(cost $2,201,792)...................... 2,201,792
------------
REPURCHASE AGREEMENTS -- 3.29%+
CS First Boston Repurchase Agreement,
1.580%, 7/1/2004 (Cost
$6,743,622)(3)...................... $ 6,743,622 6,743,622
------------
TOTAL INVESTMENTS PURCHASED WITH CASH
PROCEEDS FROM SECURITIES LENDING
(cost $10,968,500)..................... 10,968,500
------------
TOTAL INVESTMENTS -- 105.88%+
(cost $219,370,930).................... $217,101,744
============
</Table>
- ------------------
* -- Non-income producing security.
(+) -- Security has a stepped rate. The rate listed is as of June 30, 2004.
+ -- Calculated as a percentage of net assets.
++ -- Fair Valued Security.
# -- 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,
2004. Total loaned securities had a market value of $10,304,558 at June
30, 2004.
(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.
51
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 61.20%+ SHARES VALUE
- ------------------------------------------------------------------------
ACCESS/BROADBAND -- 1.93%+
PrimaCom AG ADR*.............................. 4,750 $ 3,610
UTStarcom, Inc.*.............................. 2,600 78,650
----------
82,260
----------
BROADCAST SERVICES -- 0.13%+
Liberty Media Corporation -- Class A*......... 504 4,531
Liberty Media International, Inc. -- Class
A*.......................................... 25 935
----------
5,466
----------
BUSINESS SERVICES -- 19.20%+
eSPEED, Inc. -- Class A*...................... 10,000 176,500
FactSet Research Systems, Inc. ............... 400 18,908
Interactive Data Corporation*................. 13,000 226,460
John H. Harland Company....................... 1,000 29,350
Valassis Communications, Inc.*................ 2,300 70,081
Websense, Inc.*............................... 8,000 297,840
----------
819,139
----------
COMPUTER HARDWARE/SOFTWARE -- 5.67%+
Comdisco Holding Company, Inc.*(2)............ 9,300 241,800
----------
COMPUTER SERVICES -- 3.59%+
SI International, Inc.*....................... 7,500 152,925
----------
DISTRIBUTION/WHOLESALE -- 1.69%+
Navarre Corporation*.......................... 5,000 71,950
----------
E-BUSINESS SERVICES -- 3.32%+
NetRatings, Inc.*............................. 6,700 109,143
Digital River, Inc.*.......................... 1,000 32,630
----------
141,773
----------
HOLDINGS COMPANY -- 4.98%+
Groupe Bruxelles Lambert S.A. ................ 1,200 76,721
Naspers Limited ADR........................... 1,847 135,755
----------
212,476
----------
</Table>
See Notes to the Financial Statements.
52
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
COMMON STOCKS -- 61.20%+ SHARES VALUE
- ------------------------------------------------------------------------
INTERNET SEARCH ENGINES -- 0.76%+
Netease.com, Inc. ADR*........................ 240 $ 9,917
SINA Corp*.................................... 500 16,495
Sohu.com, Inc.*............................... 300 5,964
----------
32,376
----------
INFRASTRUCTURE -- 9.49%+
IDT Corporation*.............................. 5,300 95,559
IDT Corporation -- Class B*................... 5,300 97,732
Lynch Interactive Corporation*................ 6,100 210,664
Sunshine PCS Corporation -- Class A*.......... 6,000 570
----------
404,525
----------
INTERNET TECHNOLOGY/HARDWARE -- 1.30%+
CompuCom Systems, Inc.*....................... 12,200 55,388
----------
INTERNET TECHNOLOGY/SOFTWARE -- 4.32%+
ActivCard Corporation*........................ 7,500 54,450
Imergent, Inc.*............................... 2,500 17,450
Lionbridge Technologies, Inc.*................ 4,000 30,600
ProQuest Company*............................. 3,000 81,750
----------
184,250
----------
MULTIMEDIA -- 0.56%+
Gemstar -- TV Guide International, Inc.*...... 5,000 24,000
----------
TELECOMMUNICATIONS -- 0.60%+
Warwick Valley Telephone Company.............. 1,200 25,500
----------
TITLE INSURANCE -- 3.66%+
Fidelity National Financial, Inc. ............ 4,173 155,820
----------
TOTAL COMMON STOCKS
(cost $1,984,127)........................... 2,609,648
----------
<Caption>
PREFERRED STOCKS -- 0.09%
- ------------------------------------------------------------------------
WEB HOSTING/DESIGN -- 0.09%+
PTV, Inc. -- Series A, CLB, 10.000%,
01/10/2023.................................. 500 3,800
----------
TOTAL PREFERRED STOCKS
(cost $3,875)............................... 3,800
----------
</Table>
See Notes to the Financial Statements.
53
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
CORPORATE BONDS -- 4.88%+ AMOUNT VALUE
- -------------------------------------------------------------------------
INFRASTRUCTURE -- 4.88%+
RCN Corporation, CLB, 11.125%, 10/15/2007 (In
Default)*(+)................................ $200,000 $ 117,000
Level Three Communications, Inc., CLB, 0.000%,
3/15/2010*(+)............................... 125,000 91,250
----------
TOTAL CORPORATE BONDS
(cost $224,594)............................. 208,250
----------
<Caption>
CORPORATE BONDS -- CONVERTIBLE -- 3.37%+
- -------------------------------------------------------------------------
INFRASTRUCTURE -- 3.37%+
Conexant Systems, Inc., CLB, 4.000%,
2/1/2007.................................... 150,000 143,625
----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $106,139)............................. 143,625
----------
<Caption>
RIGHTS -- 5.85%+ SHARES
- -------------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 5.85%+
Comdisco Holding Company, Inc.#*.............. 581,000 249,830
----------
TOTAL RIGHTS (cost $245,273).................. 249,830
----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 25.11%+ AMOUNT
- -------------------------------------------------------------------------
DISCOUNT NOTES -- 20.99%+
Federal Home Loan Bank Discount Note, 1.0000%,
07/01/2004.................................. $895,000 895,000
----------
VARIABLE RATE DEMAND NOTES** -- 4.12%+
American Family, 0.8811%...................... 43,854 43,854
U.S. Bank, N.A., 1.1100%...................... 69,812 69,812
Wisconsin Corporate Central Credit Union,
1.0300%..................................... 62,030 62,030
----------
175,696
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $1,070,696)........................... 1,070,696
----------
</Table>
See Notes to the Financial Statements.
54
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET EMERGING GROWTH PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
INVESTMENTS PURCHASED WITH CASH PRINCIPAL
PROCEEDS FROM SECURITIES AMOUNT
LENDING -- 6.11%+ OF SHARES VALUE
- -------------------------------------------------------------------------
COMMERCIAL PAPER -- 1.13%+
Lehman Brothers Commercial Paper,
0.000%, 7/19/2004 (Cost $48,030)............ $ 48,030 $ 48,030
----------
MONEY MARKET FUNDS -- 1.23%+
AIM Liquid Assets Portfolio -- Institutional
Class....................................... 33,621 33,621
Merrill Lynch Premier Institutional Fund...... 18,651 18,651
----------
TOTAL MONEY MARKET FUNDS
(cost $52,272).............................. 52,272
----------
REPURCHASE AGREEMENTS -- 3.75%+
CS First Boston Repurchase Agreement,
1.580%, 7/1/2004 (Cost $160,098)(3)......... $160,098 160,098
----------
TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS
FROM SECURITIES LENDING
(cost $260,400)............................. 260,400
----------
TOTAL INVESTMENTS -- 106.61%+
(cost $3,895,104)........................... $4,546,249
==========
</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, 2004.
(+) -- Security has a stepped rate. The rate is listed as of June 30, 2004.
ADR -- American Depository Receipts.
+ -- Calculated as a percentage of net assets.
# -- Contingent value right (contingent upon profitability of company).
(2) -- This security or a portion of this security was out on loan at June 30,
2004. Total loaned securities had a market value of $241,800 at June 30,
2004.
(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.
55
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 92.80%+ SHARES VALUE
- ----------------------------------------------------------------------
AIRLINES -- 1.42%+
China Eastern Airlines Corporation Limited
ADR*(2)................................... 25,000 $ 496,500
China Southern Airlines Corporation Limited
ADR*(2)................................... 25,000 492,800
-----------
989,300
-----------
AUTO INSURANCE -- 4.42%+
The Progressive Corporation................. 36,000 3,070,800
-----------
AUTO MANUFACTURING -- 0.03%+
Great Wall Automobile Holdings Company,
Limited*.................................. 20,000 20,129
-----------
BEVERAGES -- 0.01%+
Taittinger S.A. ............................ 25 5,323
-----------
BUSINESS SERVICES -- 1.19%+
Iron Mountain Incorporated*................. 1,000 48,260
Moody's Corporation......................... 12,000 775,920
-----------
824,180
-----------
COMPUTER SERVICES -- 1.05%+
CACI International, Inc. -- Class A*........ 18,000 727,920
-----------
CONSULTING SERVICES -- 0.05%+
FTI Consulting, Inc.*....................... 2,000 33,000
-----------
DATA PROCESSING SERVICES -- 2.31%+
First Data Corporation...................... 36,000 1,602,720
-----------
DOMESTIC UTILITIES-ELECTRIC -- 3.24%+
Allegheny Energy, Inc.*..................... 24,000 369,840
PG&E Corporation*........................... 60,000 1,676,400
TXU Corporation............................. 5,000 202,550
-----------
2,248,790
-----------
ENERGY-EXPLORATION & PRODUCTION -- 4.82%+
EnCana Corporation.......................... 1,800 77,688
Suncor Energy, Inc. ........................ 128,000 3,278,080
-----------
3,355,768
-----------
</Table>
See Notes to the Financial Statements.
56
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
ENERGY-INTEGRATED -- 0.17%+
PetroChina Company Limited ADR.............. 2,000 $ 92,600
Statoil ASA ADR............................. 2,000 25,440
-----------
118,040
-----------
ENERGY-PIPELINE -- 12.29%+
El Paso Corporation......................... 540,000 4,255,200
The Williams Companies, Inc. ............... 360,000 4,284,000
-----------
8,539,200
-----------
FINANCE -- 8.30%+
Deutsche Boerse AG.......................... 400 20,415
Equifax, Inc. .............................. 100 2,475
Euronext NV................................. 9,600 266,884
Hong Kong Exchanges & Clearing Limited...... 36,000 73,848
Legg Mason, Inc. ........................... 12,000 1,092,120
London Stock Exchange PLC................... 8,000 53,099
M&T Bank Corporation........................ 36,000 3,142,800
The Student Loan Corporation................ 600 81,900
Wells Fargo & Company....................... 18,000 1,030,140
-----------
5,763,681
-----------
FOOD-MISC/DIVERSIFIED -- 0.05%+
McCormick & Company, Incorporated........... 1,000 34,000
-----------
FOREIGN UTILITIES-ELECTRIC -- 1.79%+
Huaneng Power International, Inc. ADR....... 2,000 72,400
Korea Electric Power Corporation ADR(2)..... 128,000 1,172,480
-----------
1,244,880
-----------
HOLDING COMPANIES -- 14.16%+
Berkshire Hathaway Inc. -- Class B*......... 1,400 4,137,000
Brascan Corporation -- Class A.............. 1,500 42,360
Groupe Bruxelles Lambert S.A. .............. 2,000 127,870
Loews Corporation........................... 12,000 719,520
Leucadia National Corporation............... 84,000 4,174,800
Pargesa Holding AG -- Class B............... 48 129,313
Wesco Financial Corporation................. 1,400 506,800
-----------
9,837,663
-----------
HOSPITALITY -- 0.01%+
Societe du Lourve........................... 100 9,526
-----------
</Table>
See Notes to the Financial Statements.
57
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
INDEPENDENT POWER PRODUCER -- 5.46%+
Reliant Energy Inc.*........................ 270,000 $ 2,924,100
Texas Genco Holdings, Inc. ................. 19,200 865,728
-----------
3,789,828
-----------
INSURANCE-DIVERSIFIED -- 0.03%+
China Life Insurance Company, Limited
ADR*...................................... 1,000 23,690
-----------
MEDIA CONTENT -- 8.33%+
Dow Jones & Company, Inc. .................. 100 4,510
Meredith Corporation........................ 2,000 109,920
Pearson PLC ADR............................. 1,175 14,664
The E.W. Scripps Company -- Class A......... 3,600 378,000
The New York Times Company -- Class A....... 600 26,826
The Walt Disney Company..................... 1,850 47,157
The Washington Post Company -- Class B...... 5,600 5,208,056
-----------
5,789,133
-----------
MINING -- 0.97%+
Anglo American PLC ADR(2)................... 32,000 667,840
-----------
PHARMACEUTICALS -- 0.29%+
China Pharmaceutical Group Limited.......... 720,000 198,467
-----------
PROPERTY/CASUALTY INSURANCE-DIVERSIFIED -- 8.87%+
Alleghany Corporation*...................... 612 175,644
PICC Property and Casualty Company,
Limited*.................................. 180,000 69,233
White Mountains Insurance Group, Ltd. ...... 11,600 5,916,000
-----------
6,160,877
-----------
PUBLIC THOROUGHFARES -- 2.37%+
Anhui Expressway Company, Limited........... 600,000 251,930
Jiangsu Express Company, Limited............ 800,000 384,625
Shenzhen Expressway Company Limited......... 900,000 294,238
Sichuan Expressway Company Limited.......... 2,400,000 289,238
Zhejiang Expressway Company, Limited........ 600,000 426,934
-----------
1,646,965
-----------
PUBLISHING -- 0.09%+
John Wiley & Sons, Inc. -- Class B.......... 2,000 64,800
-----------
</Table>
See Notes to the Financial Statements.
58
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
REAL ESTATE DEVELOPMENT -- 0.25%+
Forest City Enterprises, Inc. -- Class A.... 1,000 $ 53,000
Texas Pacific Land Trust.................... 1,800 117,648
-----------
170,648
-----------
REAL ESTATE DIVERSIFIED -- 0.08%+
Vornado Realty Trust........................ 1,000 57,110
-----------
RE-INSURANCE -- 0.47%+
Montpelier Re Holdings, Ltd. ............... 4,000 139,800
Renaissance Re Holdings, Ltd. .............. 3,600 194,220
-----------
334,020
-----------
RETAIL-DIVERSIFIED -- 2.58%+
Kmart Holding Corporation*.................. 25,000 1,795,000
-----------
SECURITIES EXCHANGES -- 0.75%+
The Chicago Mercantile Exchange............. 3,600 519,732
-----------
SPECIALTY INSURANCE -- 0.48%+
Markel Corporation*......................... 1,200 333,000
-----------
TITLE INSURANCE -- 0.27%+
Fidelity National Financial, Inc. .......... 5,000 186,700
-----------
TRANSPORT -- SERVICES -- 0.57%+
Expeditors International of Washington,
Inc. ..................................... 8,000 395,280
-----------
UTILITIES-DIVERSIFIED -- 5.63%+
CenterPoint Energy, Inc. ................... 340,000 3,910,000
-----------
TOTAL COMMON STOCKS
(cost $54,674,132)........................ 64,468,010
-----------
</Table>
<Table>
PREFERRED STOCKS -- 0.29%+
- ----------------------------------------------------------------------
<Caption>
ENERGY-PIPELINE -- 0.08%+
The Williams Companies, Inc., Conv, 9.000%,
2/16/2005(2).............................. 4,000 55,120
-----------
55,120
-----------
</Table>
See Notes to the Financial Statements.
59
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
UTILITES-ELECTRIC -- 0.21%+
Pacific Gas and Electric Company -- Series
D, CLB, 5.000%, 8/13/2004*................ 1,600 $ 29,760
Pacific Gas and Electric Company -- Series
E, CLB, 5.000%, 8/13/2004*................ 1,000 18,750
Pacific Gas and Electric Company -- Series
G, CLB, 4.800%, 8/13/2004*................ 1,200 21,540
Pacific Gas and Electric Company -- Series
H, CLB, 4.500%, 8/13/2004*................ 1,800 30,330
Pacific Gas and Electric Company -- Series
I, CLB, 4.360%, 8/13/2004*................ 2,400 40,800
Pacific Gas and Electric Company -- Series
U, CLB, 7.040%, 8/13/2004*................ 200 5,144
-----------
146,324
-----------
TOTAL PREFERRED STOCKS
(cost $157,216)........................... 201,444
-----------
<Caption>
PUT OPTIONS PURCHASED -- 0.23%+ CONTRACTS
- ----------------------------------------------------------------------
iShares Goldman Sachs Networking Index Fund
Expiring September 2004 at $45.00......... 40 52,000
-----------
The Kroger Co.
Expiring January 2005 at $10.00........... 100 750
Expiring January 2006 at $10.00........... 130 1,950
Expiring January 2006 at $12.50........... 250 11,250
Expiring January 2005 at $15.00........... 50 1,375
Expiring January 2006 at $20.00........... 40 12,400
-----------
27,725
-----------
Safeway Inc.
Expiring January 2006 at $25.00........... 290 83,375
-----------
TOTAL PUT OPTIONS PURCHASED
(cost $316,619)........................... 163,100
-----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 7.86%+ AMOUNT
- ----------------------------------------------------------------------
DISCOUNT NOTES -- 5.40%
Federal Home Loan Bank Discount Note
1.0000%, 07/01/2004....................... $3,747,000 3,747,000
-----------
</Table>
See Notes to the Financial Statements.
60
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES** -- 2.46%+
U.S. Bank, N.A., 1.1100%.................... $1,710,640 $ 1,710,640
Wisconsin Corporate Central Credit Union,
1.0300%................................... 849 849
-----------
1,711,489
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $5,458,489)......................... 5,458,489
-----------
</Table>
<Table>
<Caption>
INVESTMENTS PURCHASED WITH PRINCIPAL
CASH PROCEEDS FROM AMOUNT
SECURITIES LENDING -- 3.48%+ OR SHARES
- ----------------------------------------------------------------------
COMMERCIAL PAPER -- 0.64%+
Lehman Brothers Commercial Paper,
0.000%, 7/19/2004
(Cost $445,029)........................... $ 445,029 445,029
-----------
MONEY MARKET FUNDS -- 0.70%+
AIM Liquid Assets Portfolio -- Institutional
Class..................................... 311,520 311,520
Merrill Lynch Premier Institutional Fund.... 172,820 172,820
-----------
TOTAL MONEY MARKET FUNDS
(cost $484,340)........................... 484,340
-----------
REPURCHASE AGREEMENTS -- 2.14%+
CS First Boston Repurchase Agreement,
1.580%, 7/1/2004
(Cost $1,483,431)(3)...................... $1,483,431 1,483,431
-----------
TOTAL INVESTMENTS PURCHASED WITH
CASH PROCEEDS FROM SECURITIES LENDING
(cost $2,412,800)......................... 2,412,800
-----------
TOTAL INVESTMENTS -- 104.66%+
(COST $63,019,256)........................ $72,703,843
===========
</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, 2004.
ADR -- American Depository Receipts.
See Notes to the Financial Statements.
61
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE PARADIGM PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
+ -- Calculated as a percentage of Net Assets.
(2) -- This security or a portion of this security was out on loan at June 30,
2004. Total loaned securities had a market value of $2,245,293 at June
30, 2004.
(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.
62
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 87.56%+ SHARES VALUE
- ------------------------------------------------------------------------
AGRICULTURAL OPERATIONS -- 0.86%+
Monsanto Company........................... 4,915 $ 189,228
-----------
BIOMEDICAL -- 31.94%+
Amgen, Inc.*............................... 9,800 534,786
Antigenics, Inc.*.......................... 892 7,636
Arena Pharmaceuticals, Inc.*............... 14,000 76,440
AVAX Technologies, Inc.*................... 50,000 13,500
Avigen, Inc.*(2)........................... 18,000 60,660
Biogen Idec, Inc.*......................... 29,250 1,850,063
Biomira, Inc.*............................. 37,000 47,730
Cambridge Antibody Technology Group PLC
ADR*..................................... 9,000 83,970
Cell Genesys, Inc.*........................ 11,725 121,823
Chiron Corporation*(1)..................... 33,000 1,473,120
deCODE genetics, Inc.*..................... 8,000 68,000
EntreMed, Inc.*(2)......................... 11,000 22,110
Genencor International, Inc.*.............. 19,000 311,030
Genzyme Corporation*....................... 8,461 400,458
Human Genome Sciences, Inc.*............... 17,000 197,710
ILEX Oncology, Inc.*....................... 29,000 724,710
Isis Pharmaceuticals, Inc.*................ 5,000 28,700
Medarex, Inc.*............................. 14,000 102,060
Millennium Pharmaceuticals, Inc.*.......... 20,296 280,085
NeoRx Corporation*(2)...................... 27,000 67,500
Progenics Pharmaceuticals, Inc.*........... 3,200 53,888
Protein Design Labs, Inc.*................. 12,000 229,560
Savient Pharmaceuticals, Inc.*............. 34,000 84,320
Sirna Therapeutics, Inc.*(2)............... 3,491 10,264
SuperGen, Inc.*(2)......................... 14,000 90,300
Targeted Genetics Corporation*............. 10,000 15,900
Vical Incorporated*........................ 10,500 61,215
-----------
7,017,538
-----------
</Table>
See Notes to the Financial Statements.
63
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
CHEMICALS-DIVERSIFIED -- 4.01%+
Akzo Nobel N.V. ADR........................ 10,000 $ 372,500
Lonza Group AG............................. 10,000 506,627
-----------
879,127
-----------
DRUG DELIVERY SYSTEMS -- 0.21%+
Hospira, Inc.*............................. 1,700 46,920
-----------
MEDICAL LABS/TESTING SERVICES -- 0.65%+
IMPATH, Inc.*.............................. 26,000 143,000
-----------
PHARMACEUTICALS -- 49.89%+
Abbott Laboratories........................ 17,000 692,920
Atlanta AG ADR............................. 12,000 724,560
Aventis S.A. ADR........................... 3,000 228,210
Bristol-Meyers Squibb Company.............. 13,000 318,500
China Pharmaceutical Group Limited......... 1,440,000 396,933
Cubist Pharmaceuticals, Inc.*.............. 4,000 44,400
Eli Lilly and Company...................... 1,000 69,910
GlaxoSmithKline PLC ADR.................... 22,673 940,023
ImmunoGen, Inc.*........................... 6,000 36,660
Isotechnika, Inc.*......................... 15,000 22,376
Johnson & Johnson.......................... 10,000 557,000
MedImmune, Inc.*........................... 29,500 690,300
MGI Pharma, Inc.*(1)....................... 20,000 540,200
Novartis AG ADR............................ 49,000 2,180,500
OSI Pharmaceuticals, Inc.*................. 737 51,914
Pfizer, Inc. .............................. 21,554 738,870
Roche Holding AG ADR....................... 4,000 396,040
Schering AG ADR............................ 19,000 1,124,990
Serono SA ADR.............................. 12,000 189,000
</Table>
See Notes to the Financial Statements.
64
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS -- (CONTINUED)
Theragenics Corporation*................... 2,000 $ 9,240
Wyeth...................................... 27,900 1,008,864
-----------
10,961,410
-----------
TOTAL COMMON STOCKS
(cost $20,143,374)....................... 19,237,223
-----------
RIGHTS -- 0.01%+
- ------------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 0.01%+
OSI Pharmaceuticals, Inc.#*................ 13,000 1,365
-----------
TOTAL RIGHTS
(cost $0)................................ 1,365
-----------
<Caption>
CORPORATE BONDS -- PRINCIPAL
CONVERTIBLE -- 0.66%+ AMOUNT
- ------------------------------------------------------------------------
BIOMEDICAL -- 0.66%+
Human Genome Sciences, Inc., CLB, 5.000%,
2/1/2007................................. $ 150,000 145,124
-----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $121,006).......................... 145,124
-----------
<Caption>
PUT OPTIONS PURCHASED -- 0.45%+ CONTRACTS
- ------------------------------------------------------------------------
Chiron Corporation
Expiring January 2005 at $40.00.......... 100 16,500
-----------
16,500
MGI Pharma, Inc.
Expiring January 2005 at $27.50.......... 200 82,000
-----------
82,000
TOTAL PUT OPTIONS PURCHASED
(cost $92,600)........................... 98,500
-----------
</Table>
See Notes to the Financial Statements.
65
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 9.90%+ AMOUNT VALUE
- ------------------------------------------------------------------------
DISCOUNT NOTES -- 5.74%+
Federal Home Loan Bank Discount Note
1.0000%, 7/1/2004........................ $1,263,000 $ 1,263,000
-----------
VARIABLE RATE DEMAND NOTES** -- 4.16%+
American Family, 0.8811%................... 335,443 335,443
U.S. Bank, N.A., 1.1100%................... 578,760 578,760
Wisconsin Corporate Central Credit Union,
1.0300%.................................. 481 481
-----------
914,684
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $2,177,684)........................ 2,177,684
-----------
<Caption>
INVESTMENTS PURCHASED WITH CASH PRINCIPAL
PROCEEDS FROM SECURITIES AMOUNT
LENDING -- 0.71%+ OR SHARES
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 0.13%+
Lehman Brothers Commercial Paper, 0.000%,
7/19/2004 (Cost $28,792)................. $ 28,792 28,792
-----------
MONEY MARKET FUNDS -- 0.14%+
AIM Liquid Assets
Portfolio -- Institutional Class......... 20,154 20,154
Merrill Lynch Premier Institutional Fund... 11,181 11,181
-----------
TOTAL MONEY MARKET FUNDS
(cost $31,335)........................... 31,335
-----------
</Table>
See Notes to the Financial Statements.
66
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 0.44%+
CS First Boston Repurchase Agreement,
1.580%, 7/1/2004 (Cost $95,973)(3)....... $ 95,973 $ 95,973
-----------
TOTAL INVESTMENTS PURCHASED WITH CASH
PROCEEDS FROM SECURITIES LENDING (cost
$156,100)................................ 156,100
-----------
TOTAL INVESTMENTS -- 99.29%+
(COST $22,690,764)....................... $21,815,996
===========
</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, 2004.
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,
2004. Total loaned securities had a market value of $127,225 at June 30,
2004.
(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 SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
COMMON STOCKS -- 77.57%+ SHARES VALUE
- ------------------------------------------------------------------------
ACCESS/BROADBAND -- 1.26%+
PrimaCom AG, ADR*.......................... 54,000 $ 41,040
UnitedGlobalCom, Inc. -- Class A*.......... 30,000 217,800
-----------
258,840
-----------
AIRLINES -- 4.61%+
China Eastern Airlines Corporation Limited
ADR*..................................... 24,000 476,640
China Southern Airlines Company Limited
ADR*(2).................................. 24,000 473,088
-----------
949,728
-----------
AUTO MANUFACTURING -- 0.11%+
Oshkosh Truck Corporation.................. 400 22,924
-----------
BANKS -- 3.71%+
Banque du Liban et d'Outre-Mer S.A.L.
(BLOM) -- Class B GDR.................... 7,200 183,600
Cathay General Bancorp..................... 1,400 93,380
Center Financial Corporation............... 4,200 63,630
East West Bancorp, Inc. ................... 2,200 67,540
Hanmi Financial Corporation................ 3,031 89,415
Nara Bancorp, Inc. ........................ 5,000 85,650
UCBH Holdings, Inc. ....................... 3,200 126,464
Wilshire State Bank*....................... 2,200 53,944
-----------
763,623
-----------
BUSINESS SERVICES -- 7.38%+
Kroll, Inc.*............................... 1,200 44,256
Loring Ward International, Limited*........ 10,000 --
Quanta Services, Inc.*..................... 200,000 1,244,000
Ritchie Bros. Auctioneers Incorporated..... 8,000 232,880
-----------
1,521,136
-----------
COMPUTER HARDWARE/SOFTWARE -- 0.05%+
Comdisco Holding Company, Inc.*(2)......... 400 10,400
-----------
</Table>
See Notes to the Financial Statements.
68
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMPUTER SERVICES -- 5.36%+
Anteon International Corporation*.......... 1,800 $ 58,716
CACI International Inc. -- Class A*........ 24,000 970,560
ManTech International Corporation -- Class
A*....................................... 4,000 75,080
-----------
1,104,356
-----------
CONSULTING SERVICES -- 1.44%+
FTI Consulting, Inc.*...................... 18,000 297,000
-----------
DEFENSE -- 0.07%+
Armor Holdings, Inc.*...................... 400 13,600
-----------
ENERGY -- 3.78%+
Calpine Corporation*(2).................... 180,000 777,600
-----------
INDEPENDENT POWER PRODUCER -- 12.63%+
Reliant Energy, Inc.*...................... 240,000 2,599,200
-----------
INFRASTRUCTURE -- 0.03%+
Lynch Interactive Corporation*............. 200 6,907
-----------
INVESTMENT MANAGEMENT -- 0.21%+
Gabelli Asset Management, Inc. ............ 1,000 42,500
-----------
MANUFACTURING -- 0.03%+
Steinway Musical Instruments, Inc.*........ 200 7,018
-----------
MEDIA CONTENT -- 0.28%+
Marvel Enterprises, Inc.*.................. 3,000 58,560
-----------
METAL FABRICATION -- 0.32%+
Commercial Metals Company.................. 2,000 64,900
-----------
MINING -- 3.76%+
Aber Diamond Corporation*.................. 7,200 213,624
Goldcorp, Inc. ............................ 2,000 23,340
Stillwater Mining Company*................. 36,000 540,360
-----------
777,324
-----------
PROPERTY/CASUALTY INSURANCE -- 2.79%+
Alleghany Corporation*..................... 2,004 575,148
-----------
</Table>
See Notes to the Financial Statements.
69
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
PUBLISHING -- 5.83%+
Courier Corporation........................ 3,200 $ 133,568
John Wiley & Sons, Inc. -- Class A......... 14,400 460,800
R.H. Donnelley Corporation*................ 8,000 349,920
Value Line, Inc. .......................... 7,200 255,672
-----------
1,199,960
-----------
REAL ESTATE DEVELOPMENT -- 9.08%+
Alexander's, Inc.*......................... 300 50,322
American Real Estate Partners, L.P.*....... 68,000 1,460,640
Forest City Enterprises, Inc. -- Class A... 400 21,200
Malan Realty Investors, Inc. .............. 1,000 4,990
Texas Pacific Land Trust................... 5,000 326,800
United Capital Corporation................. 400 6,812
-----------
1,870,764
-----------
SECURITIES DEALERS -- 2.04%+
Labranche & Co, Inc........................ 50,000 421,000
-----------
TRANSPORT SERVICES -- 0.63%+
Laidlaw International, Inc.*............... 10,000 129,600
-----------
UTILITIES-DOMESTIC -- 12.17%+
Allegheny Energy, Inc.*(2)................. 72,000 1,109,520
Aquilla, Inc.*............................. 144,000 512,640
CMS Energy Corporation*.................... 36,000 328,680
Sierra Pacific Resources*(2)............... 72,000 555,120
-----------
2,505,960
-----------
TOTAL COMMON STOCKS
(cost $12,030,555)....................... 15,978,048
-----------
<Caption>
CORPORATE PRINCIPAL
BONDS -- CONVERTIBLE -- 2.59%+ AMOUNT
- ------------------------------------------------------------------------
PROPERTY/CASUALTY -- 2.59%+
Fairfax Financial Holdings, Limited,
5.000%, 7/15/2023........................ $ 500,000 533,124
-----------
TOTAL CORPORATE BONDS -- CONVERTIBLE
(cost $497,500).......................... 533,124
-----------
</Table>
See Notes to the Financial Statements.
70
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
RIGHTS -- 6.01%+ SHARES VALUE
- ------------------------------------------------------------------------
CONTINGENT VALUE RIGHTS -- 6.01%+
Comdisco Holding Company, Inc.#*........... 2,880,300 $ 1,238,529
-----------
TOTAL RIGHTS
(cost $833,835).......................... 1,238,529
-----------
<Caption>
PUT OPTIONS PURCHASED -- 0.24%+ CONTRACTS
- ------------------------------------------------------------------------
Computer Associates International, Inc.
Expiring January 2006 at $35.00.......... 45 35,550
-----------
iShares Goldman Sachs Networking Index Fund
Expiring September 2004 at $45.00........ 10 13,000
-----------
TOTAL PUT OPTIONS
(cost $61,232)........................... 48,550
-----------
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 15.91%+ AMOUNT
- ------------------------------------------------------------------------
DISCOUNT NOTES -- 14.03%+
Federal Home Loan Bank Discount Note,
1.0000%, 7/1/2004........................ $2,890,000 2,890,000
-----------
VARIABLE RATE DEMAND NOTES** -- 1.88%+
U.S. Bank, N.A., 1.1100%................... 386,892 386,892
Wisconsin Corporate Central Credit Union,
1.0300%.................................. 323 323
-----------
387,215
-----------
TOTAL SHORT-TERM INVESTMENTS
(cost $3,277,215)........................ 3,277,215
-----------
</Table>
See Notes to the Financial Statements.
71
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE SMALL CAP OPPORTUNITIES PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited) -- (Continued)
<Table>
<Caption>
INVESTMENTS PURCHASED WITH CASH PRINCIPAL
PROCEEDS FROM SECURITIES AMOUNT
LENDING -- 11.98%+ OR SHARES VALUE
- ------------------------------------------------------------------------
COMMERCIAL PAPER -- 2.21%+
Lehman Brothers Commercial Paper,
0.000%, 7/19/2004 (Cost $455,063)........ $ 455,063 $ 455,063
-----------
MONEY MARKET FUNDS -- 2.40%+
AIM Liquid Assets
Portfolio -- Institutional Class......... 318,544 318,544
Merrill Lynch Premier Institutional Fund... 176,716 176,716
-----------
TOTAL MONEY MARKET FUNDS
(cost $495,260).......................... 495,260
-----------
REPURCHASE AGREEMENTS -- 7.37%+
CS First Boston Repurchase Agreement,
1.580%, 7/1/2004 (Cost $1,516,877)(3).... $1,516,877 1,516,877
-----------
TOTAL INVESTMENTS PURCHASED WITH CASH
PROCEEDS FROM SECURITIES LENDING
(cost $2,467,200)........................ 2,467,200
-----------
TOTAL INVESTMENTS -- 114.30%+
(COST $19,167,537)....................... $23,542,666
===========
</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, 2004.
# -- Contingent value right (contingent upon profitability of company).
+ -- Calculated as a percentage of net assets.
ADR -- American Depository Receipts.
GDR -- Global Depository Receipts.
(2) -- This security or a portion of this security was out on loan at June 30,
2004. Total loaned securities had a market value of $2,304,964 at June
30, 2004.
(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.
72
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO
Portfolio of Investments -- June 30, 2004 (Unaudited)
<Table>
<Caption>
PRINCIPAL
SHORT-TERM INVESTMENTS -- 100.60%+ AMOUNT VALUE
- ----------------------------------------------------------------------
DISCOUNT NOTES -- 100.60%+
Federal Home Loan Bank Discount Note 1.0000%,
07/01/2004................................. $2,765,000 $2,765,000
----------
TOTAL INVESTMENTS -- 100.60%+
(COST $2,765,000).......................... $2,765,000
==========
</Table>
- ------------------
+ -- Calculated as a percentage of net assets.
See Notes to the Financial Statements.
73
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE INTERNET PORTFOLIO
Portfolio of Options Written -- June 30, 2004 (Unaudited)
<Table>
<Caption>
CALL OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
WebMD Corporation
Expiring January 2005 at $10.00................ 1,090 $103,550
--------
<Caption>
PUT OPTIONS WRITTEN
- --------------------------------------------------------------------------
eBay, Inc.
Expiring January 2005 at $40.00................ 50 625
--------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $309,768)................... $104,175
========
</Table>
See Notes to the Financial Statements.
74
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
THE MEDICAL PORTFOLIO
Portfolio of Options Written -- June 30, 2004 (Unaudited)
<Table>
<Caption>
CALL OPTIONS WRITTEN CONTRACTS VALUE
- --------------------------------------------------------------------------
Chiron Corporation
Expiring January 2005 at $50.00................. 50 $ 9,000
MGI Pharma, Inc.
Expiring January 2005 at $30.00................. 100 29,000
-------
38,000
-------
TOTAL OPTIONS WRITTEN
(PREMIUMS RECEIVED $83,697)..................... $38,000
=======
</Table>
See Notes to the Financial Statements.
75
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING GROWTH
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1) (3)........................... $217,101,744 $4,546,249
Receivable for contributed capital..................... 1,055,462 14,600
Cash................................................... 468,631 --
Dividends and interest receivable...................... 194,400 3,156
Other assets........................................... 96,153 2,011
------------ ----------
Total assets....................................... 218,916,390 4,566,016
------------ ----------
LIABILITIES:
Written options, at value(2)........................... 104,175 --
Payable to Adviser..................................... 209,315 4,313
Payable to Trustees.................................... 14,973 294
Payables for collateral received for securities
loaned............................................... 10,968,500 260,400
Payable for withdrawn capital.......................... 171,907 922
Payable for investments purchased...................... 2,195,209 --
Payable to Custodian................................... -- 31,528
Accrued expenses and other liabilities................. 199,015 4,201
------------ ----------
Total liabilities.................................. 13,863,094 301,658
------------ ----------
Net assets........................................... $205,053,296 $4,264,358
============ ==========
(1) Cost of investments.................................. $219,370,930 $3,895,104
============ ==========
(2) Premiums received.................................... $ 309,768 $ --
============ ==========
(3) Includes loaned securities with a market value of.... $ 10,304,558 $ 241,800
============ ==========
</Table>
See Notes to the Financial Statements.
76
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE
PARADIGM THE MEDICAL
PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1) (3).............................. $72,703,843 $21,815,996
Receivable for contributed capital........................ 372,499 6,053
Cash...................................................... 165,939 17,778
Dividends and interest receivable......................... 50,027 20,770
Receivable for investments sold........................... -- 377,851
Other assets.............................................. 17,408 1,957
----------- -----------
Total assets.......................................... 73,309,716 22,240,405
----------- -----------
LIABILITIES:
Written options, at value(2).............................. -- 38,000
Payable to Adviser........................................ 71,749 22,801
Payable to Trustees....................................... 4,826 1,695
Payables for collateral received for securities loaned.... 2,412,800 156,100
Payable for investments purchased......................... 1,189,216 19,321
Payable for withdrawn capital............................. 94,872 6,709
Accrued expenses and other liabilities.................... 66,528 24,406
----------- -----------
Total liabilities..................................... 3,839,991 269,032
----------- -----------
Net assets.............................................. $69,469,725 $21,971,373
=========== ===========
(1) Cost of investments..................................... $63,019,256 $22,690,764
=========== ===========
(2) Premiums received....................................... $ -- $ 83,697
=========== ===========
(3) Includes loaned securities with a market value of....... $ 2,245,293 $ 127,225
=========== ===========
</Table>
See Notes to the Financial Statements.
77
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF ASSETS & LIABILITIES
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE KINETICS
GOVERNMENT
THE SMALL CAP MONEY
OPPORTUNITIES MARKET
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
ASSETS:
Investments, at value(1) (3).............................. $23,542,666 $2,765,000
Receivable for contributed capital........................ 867,237 --
Cash...................................................... 87,079 771
Dividends and interest receivable......................... 12,393 --
Other assets.............................................. 14,147 1,717
----------- ----------
Total assets.......................................... 24,523,522 2,767,488
----------- ----------
LIABILITIES:
Written options, at value(2).............................. -- --
Payable to Adviser........................................ 18,496 1,626
Payable to Trustees....................................... 1,088 2,887
Payables for collateral received for securities loaned.... 2,467,200 --
Payable for investments purchased......................... 1,370,345 --
Payable for withdrawn capital............................. 45,712 --
Accrued expenses and other liabilities.................... 22,541 14,514
----------- ----------
Total liabilities..................................... 3,925,382 19,027
----------- ----------
Net assets.............................................. $20,598,140 $2,748,461
=========== ==========
(1) Cost of investments..................................... $19,167,537 $2,765,000
=========== ==========
(2) Premiums received....................................... $ -- $ --
=========== ==========
(3) Includes loaned securities with a market value of....... $ 2,304,964 $ --
=========== ==========
</Table>
See Notes to the Financial Statements.
78
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE INTERNET
THE INTERNET EMERGING
PORTFOLIO GROWTH PORTFOLIO
- ----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+........................................... $ 1,351,594 $ 60,420
Interest............................................. 1,289,471 27,772
Income from securities lending....................... 63,111 509
------------ --------
Total investment income........................ 2,704,176 88,701
------------ --------
EXPENSES:
Investment advisory fees............................. 1,362,410 27,876
Administration fees.................................. 149,520 2,934
Professional fees.................................... 57,682 1,178
Custodian fees and expenses.......................... 19,846 2,699
Trustees' fees and expenses.......................... 15,952 422
Fund accounting fees................................. 27,460 2,057
Other expenses....................................... 11,102 182
------------ --------
Total expenses................................... 1,643,972 37,348
Expense reduction*............................... (84,487) (1,955)
------------ --------
Net expenses................................... 1,559,485 35,393
------------ --------
Net investment income.................................. 1,144,691 53,308
------------ --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments and foreign currency................... 22,465,938 (59,217)
Written option contracts expired or closed......... 19,360 --
Net change in unrealized appreciation (depreciation)
of:
Investments and foreign currency................... (28,678,807) 15,632
Written option contracts........................... 38,256 --
------------ --------
Net loss on investments................................ (6,155,253) (43,585)
------------ --------
Net increase (decrease) in net assets resulting from
operations........................................... $ (5,010,562) $ 9,723
============ ========
+ Net of Foreign Taxes Withheld of:.................... $ 14,712 $ 324
============ ========
</Table>
- ------------------
* See "Expense Reduction" in the Notes to Financial Statements.
See Notes to the Financial Statements.
79
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE
PARADIGM THE MEDICAL
PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+............................................ $ 401,307 $157,361
Interest.............................................. 158,209 22,605
Income from securities lending........................ 324 661
----------- --------
Total investment income......................... 559,840 180,627
----------- --------
EXPENSES:
Investment advisory fees.............................. 453,875 148,525
Administration fees................................... 46,866 16,502
Professional fees..................................... 20,446 6,405
Custodian fees and expenses........................... 19,830 5,630
Trustees' fees and expenses........................... 9,211 1,894
Fund accounting fees.................................. 10,199 5,717
Other expenses........................................ 364 1,274
----------- --------
Total expenses.................................... 560,791 185,974
Expense reduction*................................ (46,653) (640)
----------- --------
Net expenses.................................... 514,138 185,307
----------- --------
Net investment income (loss).......................... 45,702 (4,680)
----------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on:
Investments and foreign currency.................... 4,315,460 215,766
Written option contracts expired or closed.......... 74,537 108,997
Net change in unrealized depreciation of:
Investments and foreign currency.................... (2,793,854) (10,708)
Written option contracts............................ (69,176) (32,648)
----------- --------
Net gain on investments................................. 1,526,967 281,407
----------- --------
Net increase in net assets resulting from operations.... $ 1,572,669 $276,727
=========== ========
+ Net of Foreign Taxes Withheld of:..................... $ 14,827 $ 13,021
=========== ========
</Table>
- ------------------
* See "Expense Reduction" in the Notes to Financial Statements.
See Notes to the Financial Statements.
80
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
STATEMENT OF OPERATIONS
Six Months Ended June 30, 2004 (Unaudited)
<Table>
<Caption>
THE SMALL CAP THE KINETICS
OPPORTUNITIES GOVERNMENT MONEY
PORTFOLIO MARKET PORTFOLIO
- -----------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends+........................................... $ 304,765 $ --
Interest............................................. 57,973 10,257
Income from securities lending....................... 233 --
----------- -------
Total investment income........................ 362,971 10,257
----------- -------
EXPENSES:
Investment advisory fees............................. 114,379 6,556
Administration fees.................................. 13,069 940
Professional fees.................................... 4,653 587
Custodian fees and expenses.......................... 8,378 3,758
Trustees' fees and expenses.......................... 1,589 651
Fund accounting fees................................. 4,193 500
Other expenses....................................... 182 1,106
----------- -------
Total expenses................................. 146,443 14,098
Expense reduction*............................. (27,404) --
----------- -------
Net expenses................................... 119,039 14,098
----------- -------
Net investment income.................................. 243,932 (3,841)
----------- -------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments and foreign currency................... 2,029,465 --
Written option contracts expired or closed......... (59,251) --
Net change in unrealized appreciation (depreciation)
of:
Investments and foreign currency................... (1,465,284) --
Written option contracts........................... 7,451 --
----------- -------
Net gain on investments................................ 512,381 --
----------- -------
Net increase (decrease) in net assets resulting from
operations........................................... $ 756,313 $(3,841)
=========== =======
+ Net of Foreign Taxes Withheld of:.................... $ 2,004 $ --
=========== =======
</Table>
- ------------------
* See "Expense Reduction" in the Notes to Financial Statements.
See Notes to the Financial Statements.
81
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE INTERNET
THE INTERNET PORTFOLIO EMERGING GROWTH PORTFOLIO
------------------------------ --------------------------
SIX MONTHS SIX MONTHS
ENDED FOR THE ENDED FOR THE
JUNE 30, YEAR ENDED JUNE 30, YEAR ENDED
2004 DECEMBER 31, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- ---------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income......... $ 1,144,691 $ 2,497,295 $ 53,308 $ 77,667
Net realized gain (loss) on
sale of investments, foreign
currency and written
options..................... 22,485,298 21,223,940 (59,217) (885,675)
Net change in unrealized
appreciation (depreciation)
of investments, foreign
currency and written
options..................... (28,640,551) 70,176,909 15,632 1,962,563
------------ --------------- ---------- -----------
Net increase (decrease) in
net assets resulting
from operations......... (5,010,562) 93,898,144 9,723 1,154,555
------------ --------------- ---------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM
BENEFICIAL INTEREST
TRANSACTIONS:
Contributions................. 26,632,327 2,405,859,200 375,159 3,705,810
Withdrawals................... (48,437,969) (2,458,346,799) (772,211) (3,554,101)
------------ --------------- ---------- -----------
Net increase (decrease) in
net assets resulting
from beneficial interest
transactions............ (21,805,642) (52,487,599) (397,052) 151,709
------------ --------------- ---------- -----------
Total increase (decrease) in
net assets.................. (26,816,204) 41,410,545 (387,329) 1,306,264
NET ASSETS:
Beginning of period........... 231,869,500 190,458,955 4,651,687 3,345,423
------------ --------------- ---------- -----------
End of period................. $205,053,296 $ 231,869,500 $4,264,358 $ 4,651,687
============ =============== ========== ===========
</Table>
See Notes to the Financial Statements.
82
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENTS 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, 2004 DECEMBER 31, JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003 (UNAUDITED) 2003
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income
(loss)................... $ 45,702 $ 389,497 $ (4,680) $ (144,860)
Net realized gain (loss) on
sale of investments,
foreign currency and
written options.......... 4,389,997 453,812 324,763 (147,770)
Net change in unrealized
appreciation
(depreciation) of
investments, foreign
currency and written
options.................. (2,863,030) 12,200,098 (43,356) 5,627,386
------------ ------------ ----------- -------------
Net increase in net
assets resulting from
operations........... 1,572,669 13,043,407 276,727 5,334,756
------------ ------------ ----------- -------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
BENEFICIAL INTEREST
TRANSACTIONS:
Contributions.............. 15,907,693 92,415,880 1,124,686 132,047,719
Withdrawals................ (20,865,590) (43,123,610) (3,944,591) (136,308,781)
------------ ------------ ----------- -------------
Net increase (decrease)
in net assets
resulting from
beneficial interest
transactions......... (4,957,897) 49,292,270 (2,819,905) (4,261,062)
------------ ------------ ----------- -------------
Total increase (decrease)
in net assets............ (3,385,228) 62,335,677 (2,543,178) 1,073,694
NET ASSETS:
Beginning of period........ 72,854,953 10,519,276 24,514,551 23,440,857
------------ ------------ ----------- -------------
End of period.............. $ 69,469,725 $ 72,854,953 $21,971,373 $ 24,514,551
============ ============ =========== =============
</Table>
See Notes to the Financial Statements.
83
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE SMALL CAP
OPPORTUNITIES PORTFOLIO
-----------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
- --------------------------------------------------------------------------------------
OPERATIONS:
Net investment income................................ $ 243,932 $ 546,319
Net realized gain on sale of investments, foreign
currency and written options....................... 1,970,214 1,511,374
Net change in unrealized appreciation (depreciation)
of investments, foreign currency and written
options............................................ (1,457,833) 5,906,903
------------ -------------
Net increase in net assets resulting from
operations..................................... 756,313 7,964,596
------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
BENEFICIAL INTEREST TRANSACTIONS:
Contributions........................................ 10,771,986 207,817,396
Withdrawals.......................................... (16,719,693) (193,488,428)
------------ -------------
Net increase (decrease) in net assets resulting
from beneficial interest transactions.......... (5,947,707) 14,328,968
------------ -------------
Total increase (decrease) in net assets.............. (5,191,394) 22,293,564
NET ASSETS:
Beginning of period.................................. 25,789,534 3,495,970
------------ -------------
End of period........................................ $ 20,598,140 $ 25,789,534
============ =============
</Table>
See Notes to the Financial Statements.
84
KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
THE KINETICS GOVERNMENT
MONEY MARKET PORTFOLIO
-------------------------------
SIX MONTHS FOR THE
ENDED YEAR ENDED
JUNE 30, 2004 DECEMBER 31,
(UNAUDITED) 2003
- ---------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss)........................ $ (3,841) $ 74,241
Net realized gain on sale of investments............ -- --
Net change in unrealized appreciation of
investments....................................... -- --
------------ ---------------
Net increase (decrease) in net assets resulting
from operations............................... (3,841) 74,241
------------ ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
BENEFICIAL INTEREST TRANSACTIONS:
Contributions....................................... 20,422,381 2,678,064,621
Withdrawals......................................... (20,595,205) (2,803,974,514)
------------ ---------------
Net decrease in net assets resulting from
beneficial interest transactions.............. (172,824) (125,909,893)
------------ ---------------
Total decrease in net assets........................ (176,665) (125,835,652)
NET ASSETS:
Beginning of period................................. 2,925,126 128,760,778
------------ ---------------
End of period....................................... $ 2,748,461 $ 2,925,126
============ ===============
</Table>
See Notes to the Financial Statements.
85
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (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
86
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (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, 2004, The Internet Portfolio held one such security
which represented 0.71% of the Portfolio's net assets.
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
87
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
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 exchange rate of such
currencies against the U.S. dollar, as provided by an approved pricing service,
and (ii) purchases and sales of investment securities, dividend and interest
income and certain expenses at the rates of exchange prevailing
88
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
on the respective dates of such transactions. The Master Portfolios do not
isolate and treat as ordinary income that portion of the results of operations
arising as a result of changes in the exchange rate from the fluctuations
arising from changes in the market prices of securities held during the period.
However, for federal income tax purposes, the Master Portfolios do isolate and
treat as ordinary income the effect of changes in foreign exchange rates arising
from actual foreign currency transactions and the effect of changes in foreign
exchange rates arising between trade date and settlement date.
RESTRICTED SECURITIES
The Master Portfolios may invest in restricted securities. These securities are
valued by the Master Portfolios after giving due consideration to pertinent
factors including recent private sales, market conditions and the issuer's
financial performance. The Master Portfolios have no right to require
registration of unregistered securities. At June 30, 2004, the Master Portfolios
did not hold any investment securities which were determined to be illiquid
pursuant to the guidelines adopted by the Board of Trustees.
WHEN-ISSUED SECURITIES
The Master Portfolios may purchase securities on a when-issued or delayed
delivery basis. Although the purchase amounts of these securities are
established at the time the purchaser enters into the agreement, these
securities may be delivered and paid for at a future date. The Master Portfolios
record purchases of when-issued securities and reflect the values of such
securities in determining net asset value in the same manner as other portfolio
securities. The Master Portfolios maintain at all times cash or other liquid
assets in an amount at least equal to the amount of outstanding commitments for
when-issued securities.
EXPENSE REDUCTION
The Adviser has directed certain of The Internet Portfolio, The Internet
Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio and The
Small Cap Opportunities Portfolio trades to brokers believed to provide best
execution and has generated directed brokerage credits to reduce certain service
provider fees. For the six months ended June 30, 2004, The Internet Portfolio,
The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical
Portfolio, and The Small Cap Opportunities Portfolio expenses were reduced by
$84,487, $1,955, $46,653, $640, $27,404, respectively, by using directed
brokerage credits. In accordance with the requirements of the Securities and
Exchange Commission, such amounts are required to be
89
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
shown as an expense and have been included in each of the service provider fees
in the Statement of Operations.
SECURITIES LENDING
Each Master Portfolio may lend its portfolio securities to broker-dealers by
entering directly into lending arrangements with such broker-dealers or
indirectly through repurchase agreements with respect to no more than 33 1/3% of
the total assets of each Portfolio (including any collateral posted) or 50% of
the total assets of each Portfolio (excluding any collateral posted). Securities
lending and repurchase transactions will be fully collateralized at all times
with cash and/or short-term debt obligations. The Master Portfolios receive
interest on the collateral received as well as a fee for the securities loaned.
EXPENSE ALLOCATION
Common expenses incurred by the Master Portfolios are allocated among the Master
Portfolios (i) based upon relative average net assets, (ii) as incurred on a
specific identification basis, or (iii) equally among the Master Portfolios,
depending on the nature of the expenditure. All expenses incurred by the Master
Portfolios are allocated to the Feeder Funds daily based on their proportionate
interest in the Master Portfolio.
FEDERAL INCOME TAXES
Each Master Portfolio 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.
90
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
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, 2004, The Internet Portfolio, The Internet Emerging Growth
Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap
Opportunity Portfolio, The Kinetics Government Money Market Portfolio incurred
expenses of $1,362,410, $27,876, $453,875, $148,525, $114,379, $6,556,
respectively, pursuant to the Investment Advisory Agreement.
4. SECURITIES TRANSACTIONS
Purchases and sales of investment securities, other than short-term investments,
for the six months ended June 30, 2004 were as follows:
<Table>
<Caption>
PURCHASES SALES
------------------------ -------------------------
U.S. U.S.
GOVERNMENT OTHER GOVERNMENT OTHER
---------- ----------- ---------- ------------
The Internet Portfolio...... $-- $52,014,809 $-- $123,280,949
The Internet Emerging Growth
Portfolio................. -- 262,280 -- 624,781
The Paradigm Portfolio...... -- 29,737,913 -- 29,724,417
The Medical Portfolio....... -- 1,029,500 -- 2,682,145
The Small Cap Opportunities
Portfolio................. -- 6,138,483 -- 12,346,159
</Table>
As of June 30, 2004, 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................. $(4,711,789) $42,361,079 $(47,072,868)
The Internet Emerging Growth
Portfolio............................ 628,760 1,161,762 (533,002)
The Paradigm Portfolio................. 9,622,609 10,882,318 (1,259,709)
The Medical Portfolio.................. (829,071) 4,342,724 (5,171,795)
The Small Cap Opportunities
Portfolio............................ 4,314,212 4,642,797 (328,585)
</Table>
91
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
At June 30, 2004, the cost of investments for federal income tax purposes was
$222,019,126, $3,917,489, $63,081,234, $22,690,764 and $19,228,454 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, 2004, the Master Portfolios wrote the
following options:
<Table>
<Caption>
NUMBER PREMIUM
OF CONTRACTS AMOUNT
------------ ---------
THE INTERNET PORTFOLIO
- -----------------------------------------------------
Outstanding at the Beginning of Period............... 1,500 $ 336,187
Options Written...................................... -- --
Options Exercised.................................... -- --
Options Expired...................................... -- --
Options Closed....................................... (360) (26,419)
----- ---------
Outstanding at the End of Period..................... 1,140 $ 309,768
===== =========
THE INTERNET EMERGING GROWTH PORTFOLIO
- -----------------------------------------------------
Outstanding at the Beginning of Period............... -- $ --
Options Expired...................................... -- --
----- ---------
Outstanding at the End of Period..................... -- $ --
===== =========
THE PARADIGM PORTFOLIO
- -----------------------------------------------------
Outstanding at the Beginning of Period............... 420 $ 85,926
Options Written...................................... -- --
Options Expired...................................... (50) (29,944)
Options Closed....................................... (370) (55,982)
----- ---------
Outstanding at the End of Period..................... -- $ --
===== =========
THE MEDICAL PORTFOLIO
- -----------------------------------------------------
Outstanding at the Beginning of Period............... 200 $ 140,345
Options Written...................................... 100 52,349
Options Exercised.................................... -- --
Options Expired...................................... (150) (108,997)
Options Closed....................................... -- --
----- ---------
Outstanding at the End of Period..................... 150 $ 83,697
===== =========
THE SMALL CAP OPPORTUNITIES PORTFOLIO
- -----------------------------------------------------
Outstanding at the Beginning of Period............... 150 $ 19,299
Options Written...................................... -- --
Options Exercised.................................... -- --
Options Closed....................................... (150) (19,299)
----- ---------
Outstanding at the End of Period..................... -- $ --
===== =========
</Table>
92
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
5. PORTFOLIO SECURITIES LOANED
As of June 30, 2004, 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, 2004, were as follows:
<Table>
<Caption>
SECURITIES COLLATERAL
----------- -----------
The Internet Portfolio.................... $10,304,558 $10,968,500
The Internet Emerging Growth Portfolio.... 241,800 260,400
The Paradigm Portfolio.................... 2,245,293 2,412,800
The Medical Portfolio..................... 127,225 156,100
The Small Cap Opportunities Portfolio..... 2,304,964 2,467,200
</Table>
93
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
6. SELECTED FINANCIAL HIGHLIGHTS
Financial highlights for the Master Portfolios were as follows:
<Table>
<Caption>
THE INTERNET PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement............. 1.51%* 1.51% 1.51% 1.44% 1.43%*
After expense reimbursement.............. 1.43%* 1.51% 1.51% 1.44% 1.43%*
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement............. 0.97%* 0.99% 0.50% 0.32% (0.69%)*
After expense reimbursement.............. 1.05%* 0.99% 0.50% 0.32% (0.69%)*
Portfolio turnover rate................... 30% 69% 41% 44% 16%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE INTERNET EMERGING GROWTH PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.68%* 1.84% 1.83% 2.30% 1.93%*
After expense reimbursement............ 1.59%* 1.84% 1.83% 2.30% 1.84%*
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement........... 2.30%* 1.94% (1.07%) (0.22%) (0.35%)*
After expense reimbursement............ 2.39%* 1.94% (1.07%) (0.22%) (0.26%)*
Portfolio turnover rate................. 7% 20% 27% 24% 30%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
94
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE PARADIGM PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.54%* 1.56% 1.64% 2.27% 2.85%*
After expense reimbursement............ 1.41%* 1.46% 1.64% 2.27% 2.60%*
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement........... 0.00%* 1.28% (0.27%) (0.69%) (0.66%)*
After expense reimbursement............ 0.13%* 1.38% (0.27%) (0.69%) (0.41%)*
Portfolio turnover rate................. 49% 20% 40% 41% 89%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE MEDICAL PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.56%* 1.53% 1.53% 1.51% 1.47%*
After expense reimbursement............ 1.56%* 1.53% 1.53% 1.51% 1.46%*
Ratio of net investment loss to average
net assets:
Before expense reimbursement........... (0.04%)* (0.56%) (0.47%) (0.39%) (0.55%)*
After expense reimbursement............ (0.04%)* (0.56%) (0.47%) (0.39%) (0.54%)*
Portfolio turnover rate................. 5% 16% 9% 6% 1%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
95
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
<Table>
<Caption>
THE SMALL CAP OPPORTUNITIES PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.60%* 1.67% 1.66% 2.35% 13.27%*
After expense reimbursement............ 1.30%* 1.49% 1.66% 2.35% 10.93%*
Ratio of net investment income (loss) to
average net assets:
Before expense reimbursement........... 2.37%* 2.88% (0.29%) (0.99%) (11.12%)*
After expense reimbursement............ 2.67%* 3.06% (0.29%) (0.99%) (8.78%)*
Portfolio turnover rate................. 39% 180% 200% 181% 198%
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
<Table>
<Caption>
THE KINETICS GOVERNMENT
MONEY MARKET PORTFOLIO
----------------------------------------------------------------------
FOR THE APRIL 28,
SIX MONTHS FOR THE FOR THE FOR THE 2000(+)
ENDED YEAR ENDED YEAR ENDED YEAR ENDED THROUGH
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2004 2003 2002 2001 2000
---------- ------------ ------------ ------------ ------------
Ratio of expenses to average net assets:
Before expense reimbursement........... 1.08%* 0.79% 0.75% 0.79% 0.78%*
After expense reimbursement............ 1.08%* 0.79% 0.75% 0.79% 0.78%*
Ratio of net investment income to
average net assets:
Before expense reimbursement........... (0.29%)* 0.15% 0.67% 2.70% 5.36%*
After expense reimbursement............ (0.29%)* 0.15% 0.67% 2.70% 5.36%*
Portfolio turnover rate................. N/A N/A N/A N/A N/A
</Table>
- ------------------
* Annualized.
(+) Commencement of operations.
7. ADDITIONAL INFORMATION
PricewaterhouseCoopers LLP ("PWC") was replaced as the auditors to Kinetics
Portfolios Trust (the "Company") effective April 22, 2004. The Company's Audit
Committee participated in and approved the decision to change auditors. PwC's
reports on the Company's financial statements for the fiscal years ended
December 31, 2003 and December 31, 2002 contained no adverse opinion or
disclaimer of opinion nor were they qualified or modified as to uncertainty,
audit scope or accounting principles. During the Company's fiscal years ended
December 31, 2003 and December 31, 2002 and through April 22, 2004, (i) there
were no disagreements with PwC on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of PwC, would have caused it
to make reference
96
KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
June 30, 2004 (Unaudited)
to the subject matter of the disagreements in connection with its reports on the
Company's financial statements for such years, and (ii) there were no
"reportable events" of the kind described in Item 304(a)(1)(v) of Regulation S-K
under the Securities Exchange Act of 1934, as amended.
On April 22, 2004, the Company by action of its Board of Trustees upon the
recommendation of the Company's Audit Committee engaged Tait, Weller & Baker as
the independent registered public accounting firm to audit the Company's
financial statements for the fiscal year ending December 31, 2004. During the
Company's fiscal years ended December 31, 2003 and December 31, 2002 and through
April 22, 2004, neither the Company, its portfolios nor anyone on their behalf
has consulted Tait, Weller & Baker on items which (i) concerned the application
of accounting principles to a specified transaction, either completed or
proposed, or the type of audit opinion that might be rendered on the Company's
financial statements or (ii) concerned the subject of a disagreement (as defined
in paragraph (a)(1)(iv) of Item 304 of Regulation S-K) or reportable events (as
described in paragraph (a)(1)(v) of said Item 304).
97
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 REGISTERED
PUBLIC ACCOUNTING FIRM
TAIT, WELLER & BAKER
1818 Market Street, Suite 2400
Philadelphia, PA 19103
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
THE FUNDS'S PROXY VOTING POLICIES AND PROCEDURES ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST BY CALLING 1-800-930-3828. INFORMATION
REGARDING HOW THE FUNDS VOTED PROXIES RELATING TO PORTFOLIO SECURITIES DURING
THE TWELVE MONTHS ENDED JUNE 30, 2004 WILL BE AVAILABLE AFTER AUGUST 31, 2004 ON
THE SEC'S WEBSITE (at http://www.sec.gov) AND BY CALLING 1-800-930-3828.
ITEM 2. CODE OF ETHICS.
Not applicable for semi-annual reports.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable for semi-annual reports.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable to open-end investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to open-end investment companies.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES.
Not applicable to open-end investment companies.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 10. 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 "1940 Act")) are effective as of a date within 90 days of
the filing of this report that includes the disclosure required by this
paragraph, based on the evaluation of these controls and procedures
required by Rule 30a-3(b) under the 1940 Act and 15d-15(b) under the
Securities Exchange Act of 1934, as amended.
(b) There were no changes in the Registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred
during the Registrant's last fiscal half-year (the Registrant's second
fiscal half-year in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.
ITEM 11. EXHIBITS.
(a) (1) Not applicable.
(a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. Filed herewith.
(b) Certifications 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
-----------------------------------------------
Peter B. Doyle, President
Date September 8, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Peter B. Doyle
-----------------------------------------------
Peter B. Doyle, President
Date September 8, 2004
By (Signature and Title) /s/ Leonid Polyakov
-----------------------------------------------
Leonid Polyakov, Treasurer
Date September 8, 2004
* Print the name and title of each signing officer under his or her signature.