The Medical Fund
A Series of Kinetics Mutual Funds, Inc.
Prospectus & Application
September 27, 1999
The Medical Fund (the "Fund") is a no-load, non-diversified investment
company which seeks to provide investors with long-term capital growth by
investing primarily in the equity securities of domestic and foreign companies
engaged in medical research, treatments and related medical technology with an
emphasis towards companies engaged in cancer research and drug development.
This Prospectus gives vital information about the Fund. For your own
benefit and protection, please read it before you invest, and keep it on hand
for future reference.
Investment Adviser
Kinetics Asset Management, Inc.
Minimum Initial Investment -- $1,000
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of
the Prospectus. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
Risk/Return Summary 1
Performance 2
Fees and Expenses of the Fund 2
Investment Objective and Strategies 3
Main Risks 4
Management of the Fund 6
Valuation of Fund Shares 6
How To Purchase Shares 7
How To Redeem Shares 8
Exchange Privilege 10
Distribution and Taxes 10
Distribution of Shares 11
Master/Feeder Fund Structure 11
Counsel and Independent Auditors 12
Financial Highlights 12
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THE MEDICAL FUND
RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE
The investment objective of The Medical Fund (the "Fund") is long-term growth of
capital.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing primarily in
common stocks, convertible securities, warrants and other equity securities
having the characteristics of common stocks, such as American Depositary
Receipts and International Depositary Receipts of domestic and foreign companies
engaged in the medical research, pharmaceutical and technology industries and
related medical technology industries, generally, with an emphasis toward
companies engaged in cancer research and drug development.
PRINCIPAL RISKS OF INVESTING IN THE FUND
Investing in common stocks has inherent risks that could cause you to lose
money. The principal risks of investing in this Fund are listed below and could
adversely affect the Fund's net asset value and total return.
o Stock Market Risks: Stock mutual funds are subject to stock market risks
and significant fluctuations in value. If the stock market declines in
value, the Fund is likely to decline in value and you could lose money on
your investment.
o Stock Selection Risks: The stocks selected by the investment adviser may
decline in value or not increase in value when the stock market in general
is rising and may fail to meet the Fund's investment objective.
o Liquidity Risks: The investment adviser may not be able to sell stocks at
an optimal time or price.
o Industry Risks: Mutual funds that invest in a particular industry carry a
risk that a group of industry-related stocks will decline in price due to
industry-specific developments. Companies in the same or similar industries
may share common characteristics and are more likely to react to
industry-specific market or economic developments.
o Specific Risks of the Medical Industry: Medical and pharmaceutical-related
companies in general are subject to the rate of change in technology, which
is generally higher than that of other industries. Similarly, cancer
research-related industries use many products and services of companies
engaged in the medical and pharmaceutical related activities and are also
subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances. Further, the medical
research and development industry is subject to strict regulatory scrutiny
and ongoing legislative action.
o Small and Medium-Size Company Risks: The Fund may invest in the stocks of
small, medium and large-sized companies. Small and medium-size companies
often have narrower markets and more limited managerial and financial
resources than larger, more established companies. As a result, their
performance can be more volatile and they face a greater risk of business
failure, which could increase the volatility of the Fund's portfolio.
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o Foreign Securities Risks: The Fund may invest in foreign securities, which
can carry higher returns but involve more risks than those associated with
domestic investments. Additional risks include currency fluctuations,
political and economic instability, differences in financial reporting
standards and less stringent regulation of securities markets.
o Non-Diversification Risks: As a non-diversified investment company, more of
the Fund's assets may be concentrated in the common stock of any single
issuer, which may make the value of the Fund's shares more susceptible to
certain risks than shares of a more diversified mutual fund.
WHO MAY WANT TO INVEST
This Fund may be appropriate for investors who:
o wish to invest for the long term.
o want to diversify their portfolios.
o want to allocate some portion of their long-term investments to aggressive
equity investing.
o are willing to accept a high degree of volatility.
PERFORMANCE
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Because the Fund is new, there is no performance information available at this
point. Once the Fund has an annual total return for at least one calendar year,
the Fund will have a bar chart and table showing the Fund's annual total return.
FEES AND EXPENSES OF THE FUND
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As an investor, you pay certain fees and expenses if you buy and hold shares of
the Fund. These fees and expenses are described in the table below and are
further explained in the example that follows.
<TABLE>
<CAPTION>
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES1
(fees paid directly from your investment)
<S> <C>
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price) None
Maximum Deferred Sales Charge (Load) (as a percentage of offering price) None
Maximum Sales Charge (Load) on Reinvested Dividends None
Redemption Fee (as a percentage of amount redeemed, if applicable) None
Maximum Account Fee2 None
ESTIMATED ANNUAL OPERATING EXPENSES
(expenses deducted from Fund assets)
Management Fees 1.25%
Distribution (Rule 12b-1) Fees None
Other Expenses 0.75%
-----
Estimated Total Annual Fund Operating Expenses 2.00%
=====
</TABLE>
1 Although no sales loads or transaction fees are charged, you will be
assessed fees for outgoing wire transfers, returned checks and exchanges
between the Fund and any other series of Kinetics Mutual Fund, Inc.
2 Accounts of IRA Trustees are assessed a $12.50 annual fee.
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EXAMPLE
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of these periods. The
Example also assumes that your investment has a 5% rate of return each year and
that the Fund's operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your cost would be:
1 Year 3 Years
$203 $627
INVESTMENT OBJECTIVE AND STRATEGIES
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INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term growth of capital.
INVESTMENT STRATEGIES
To achieve the Fund's objective, under normal circumstances, at least 65% of the
Fund's total assets will be invested in common stocks, convertible securities,
warrants and other equity securities having the characteristics of common
stocks, such as American Depositary Receipts ("ADRs") and International
Depositary Receipts ("IDRs"), of domestic and foreign companies engaged in the
medical research, pharmaceutical and technology industries and related medical
technology industries, generally, with an emphasis toward companies engaged in
cancer research and drug development. The Fund's investment adviser believes
that favorable investment opportunities are available through companies that are
developing technology, products, and/or services for cancer research and
treatment and related medical activities. Accordingly, the Fund seeks to invest
in the equity securities of companies whose research and development efforts may
result in higher stock values.
Portfolio securities will be selected from companies that are engaged in the
medical industry generally, including companies engaged in cancer research and
treatment, biopharmaceutical research and the development of medical instruments
for therapeutic purposes. These companies may be large, medium or small in size
if in the investment adviser's opinion, the companies meet the Fund's investment
criteria. Such companies include, but are not limited to the following:
o Pharmaceutical Development Companies: Companies that develop drugs and
medications for the treatment and prevention of cancer and other disease.
o Surgical and Medical Instrument Manufacturers and Developers: Companies
that produce, manufacture and develop the tools used by health care
providers in the delivery of medical care and procedures for the treatment
of cancer and other diseases.
o Pharmaceutical Manufacturers: Companies that primarily engage in the mass
production of existing drugs and medicines including drugs and medicines
for the treatment of cancer and other diseases.
o Medical Research Companies: Companies that primarily research and develop
new methods and procedures in the provision of health care related services
for the treatment of cancer and other diseases.
The investment adviser selects portfolio securities by evaluating a company's
positioning and resources that it currently expends on research and development
looking for a significant percentage, or large amount, of capital invested into
research and treatment of cancer and other diseases. The investment adviser also
considers a company's fundamentals by reviewing its balance sheets, corporate
revenues, earnings and dividends. The investment adviser believes that dollars
invested in research and development today frequently have significant bearing
on future growth.
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TEMPORARY INVESTMENTS
To respond to adverse market, economic, political or other conditions, the Fund
may invest up to 100% of its assets in high quality domestic short-term debt
securities and money market instruments. The Fund may invest up to 35% of its
assets in these securities to maintain liquidity. Some of these short-term money
market instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and banker's acceptance
o U.S. Government securities (i.e., U.S. Treasury obligations)
o repurchase agreements
To the extent the Fund engages in this temporary, defensive strategy, the Fund
may not achieve its investment objective.
MAIN RISKS
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INVESTING IN MUTUAL FUNDS
All mutual funds carry a certain amount of risk, which may cause you to lose
money on your investment. The following describes the primary risks of investing
in the Fund due to the Fund's specific investment objective and strategies. As
all investment securities are subject to inherent market risks and fluctuations
in value due to earnings, economic and political conditions and other factors,
the Fund cannot give any assurance that its investment objective will be
achieved. In addition, you should be aware that the Fund has no operating
history.
MEDICAL RESEARCH INDUSTRY SPECIFIC RISKS
Medical and pharmaceutical-related companies in general are subject to the rate
of change in technology, which is generally higher than that of other
industries. Similarly, cancer research-related industries use many products and
services of companies engaged in medical and pharmaceutical-related activities
and are also subject to relatively high risks of rapid obsolescence caused by
progressive scientific and technological advances. Medical research and
development is also subject to strict regulatory scrutiny and ongoing
legislative action.
MARKET RISK
The net asset value of the Fund will fluctuate based on changes in the value of
its underlying portfolio. The stock market is generally susceptible to volatile
fluctuations in market price. Market prices of securities in which the Fund
invests may be adversely affected by an issuer's having experienced losses or by
the lack of earnings or by the issuer's failure to meet the market's
expectations with respect to new products or services, or even by factors wholly
unrelated to the value or condition of the issuer. The value of the securities
held by the Fund is also subject to the risk that a specific segment of the
stock market does not perform as well as the overall market. Under any of these
circumstances, the value of the Fund's shares and total return will fluctuate,
and your investment may be worth more or less than your original cost when you
redeem your shares.
YEAR 2000 ISSUE
Like other mutual funds, financial and business organizations and individuals
around the world, the Fund may be adversely affected if the computer systems
used by the investment adviser, the administrator and other service providers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue." The
investment adviser and the administrator are taking steps that they believe are
reasonably designed to address the Year 2000 Issue with respect to computer
systems that they use. The investment adviser and administrator are also
obtaining reasonable assurances that comparable steps are being taken by the
Fund's other major service providers.
Although there can be no assurance at this time that there will be no adverse
impact on the Fund, the Fund's service providers have advised the Fund that they
have been actively working on necessary changes to their computer systems to
prepare for the year 2000. The Fund's service providers expect that their
systems, and those of other parties they deal with, will be adapted in time for
that event. However, there can be no assurance that the computer systems of the
companies in which the Fund invests (especially those of foreign companies) will
be converted on a timely basis or that the value of such investments will not be
adversely affected by the Year 2000 Issue. Foreign issuers, capital markets and
economies may be more susceptible to year 2000 issues than domestic companies.
If the computer systems of the companies in which the Fund
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invests, including those of foreign companies, are not adequately prepared for
the year 2000, the Fund's net asset value and total return could be adversely
affected.
OTHER SECURITIES THE FUND MIGHT PURCHASE
Under normal market conditions, the Fund will invest at least 65% of its total
assets in equity securities, consisting of common stocks, convertible
securities, warrants and securities having the characteristics of common stocks.
If the investment adviser believes that market conditions warrant a temporary
defensive posture, the Fund may invest without limitation in high quality,
short-term debt securities and money market instruments. These short-term debt
securities and money market instruments include commercial paper, certificates
of deposit, bankers' acceptances, and U.S. Government securities and repurchase
agreements. More information about these investments is disclosed in the
Statement of Additional Information ("SAI").
SECURITIES LENDING
The Fund may lend its portfolio securities to broker-dealers by entering
directly into lending arrangements with such broker-dealers or indirectly
through repurchase agreements, amounting to no more than 25% of its assets.
Repurchase transactions will be fully collateralized at all times with cash
and/or short-term debt obligations. These transactions involve some risk to the
Fund if the other party should default on its obligation and the Fund is delayed
or prevented from recovering the collateral. In the event the original seller
defaults on its obligation to repurchase, the Fund will seek to sell the
collateral, which could involve costs or delays. To the extent proceeds from the
sale of collateral are less than the repurchase price, the Fund would suffer a
loss.
NON-DIVERSIFICATION
The Fund is classified as "non-diversified" under federal securities laws which
means that one-half of the Fund's assets may be invested in two or more stocks
while the other half is spread out among various investments not exceeding 5% of
the Fund's total assets. As a result of its non-diversified status, the Fund's
shares may be more susceptible to adverse changes in the value of the securities
of a particular company than would be the shares of a diversified investment
company.
INVESTMENT IN SMALL AND MID-CAP COMPANIES
The Fund will invest in small and mid-cap companies. Accordingly, the Fund may
be subject to the additional risks associated with investment in companies with
small or mid-sized capital structures (generally a market cap of $5 billion or
less). The market prices of the securities of such companies tend to be more
volatile than those of larger companies. Further, these securities tend to trade
at a lower volume than those of larger, more established companies. If the Fund
is heavily invested in these securities, the net asset value of the Fund will be
more susceptible to sudden and significant losses if the value of these
securities decline.
FOREIGN SECURITIES
Investing in foreign securities can carry higher returns than those associated
with domestic investments. However, foreign securities may be substantially
riskier than domestic investments. The economies of foreign countries may differ
from the U.S. economy in such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment, resource
self-sufficiency, and balance of payments position. Furthermore, the economies
of developing countries generally are heavily dependent on international trade
and, accordingly, have been, and may continue to be, adversely affected by trade
barriers, exchange controls, managed adjustments in relative currency values and
other protective measures imposed or negotiated by the countries with which they
trade. These economies also have been, and may continue to be, adversely
affected by economic conditions in the countries with which they trade.
Funds may be required to obtain prior governmental approval for foreign
investments in some countries under certain circumstances. Governments may
require approval to invest in certain issuers or industries deemed sensitive to
national interests, and the extent of foreign investment in certain debt
securities and domestic companies may be subject to limitation. Individual
companies may also limit foreign ownership to prevent, among other things,
violation of foreign limitations.
Some foreign investments may risk being subject to repatriation controls that
could render such securities illiquid. Other countries might undergo
nationalization, expropriation, political changes, governmental regulation,
social instability or diplomatic developments (including war) that could
adversely affect the economies of such countries or the value of the investments
in those countries. For this reason, funds that invest primariliy in the
securities of a single country will be greatly impacted by any political,
economic or regulatory developments affecting the value of the securities.
Additional risks include currency fluctuations, political and economic
instability, differences in financial reporting standards and less stringent
regulation of securities markets.
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FUND BORROWING
The Fund may leverage up to 5% of its assets to fund investment activities or to
achieve higher returns. The Fund may borrow money from banks for temporary or
emergency purposes in order to meet redemption requests. To reduce its
indebtedness, the Fund may have to sell a portion of its investments at a time
when it may be disadvantageous to do so. In addition, interest paid by the Fund
on borrowed funds would decrease the net earnings of both the Fund and your
investment.
MANAGEMENT OF THE FUND
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INVESTMENT ADVISER
The Fund's investment adviser is Kinetics Asset Management, Inc. ("Kinetics" or
the "investment adviser"), 477 Madison Avenue, 16th Floor, New York, New York,
10022. The management and affairs of the Fund are supervised by its Board of
Directors whose names and general background information appear in the SAI. The
investment adviser conducts investment research and supervision for the Fund and
is responsible for the purchase and sale of securities for the Fund's portfolio.
The investment adviser receives an annual fee from the Fund for its services of
1.25% of the Fund's average daily net assets.
Peter B. Doyle is the Chairman of the Board of Directors of Kinetics. He is also
the Chief Investment Strategist. Steven R. Samson is the President and Chief
Executive Officer of Kinetics. Mr. Samson has more than 24 years experience in
the mutual funds and financial services industries. Lee Schultheis is Managing
Director and Chief Operating Officer of Kinetics. Mr. Schultheis has more than
20 years of experience in the mutual funds and financial services industries.
PORTFOLIO MANAGERS
BRUCE P. ABEL is Co-Portfolio Manager of the Fund. Mr. Abel's primary duties
include research and analysis of developing scientific technologies and
innovations in the medical, bio-technical and pharmaceutical industries specific
to cancer research and treatment. Prior to joining Kinetics in 1999, Mr. Abel
was employed with Brookhaven National Laboratory since 1989 where he worked
researching, developing and implementing technical and scientific programs and
systems in the areas of nuclear physics, computer programming, and industrial
design. During that time, Mr. Abel was also a freelance writer for Academic
Science News and Review, researching, reporting, and providing scholarly
analysis and insight on a myriad of issues and developments in the fields of
science and technology. Mr. Abel has over ten years experience in the fields of
science, chemistry, physics, and engineering. Mr. Abel holds a Masters Degree in
Mechanical Engineering with an emphasis on Nuclear Engineering, and has also
studied extensively in the areas of Applied Mathematics, Hydrodynamics,
Aerodynamics, and Physics.
PETER B. DOYLE is Co-Portfolio Manager of the Fund and is primarily responsible
for the day-to-day management of the Fund's assets and securities. Mr. Doyle is
the Chief Investment Strategist and Chairman of the Board of Directors of
Kinetics. In early 1996, Mr. Doyle, co-founded Kinetics, the investment adviser
to The Internet Fund, Inc. Mr. Doyle also co-founded and is a Managing Director
of Horizon Asset Management, Inc., a New York based investment management and
research firm, since 1994. From 1988 through late 1994, Mr. Doyle was an
Investment Officer in Bankers Trust Company's Investment Services Group, where
he was responsible for managing approximately $250 million in assets. During his
tenure at Bankers Trust Company, Mr. Doyle served on the Finance and Utility
research sub-groups and had analytical responsibility for the REIT sector. Mr.
Doyle received a Masters of Business Administration from Fordham University and
a Bachelor of Science in economics from St. John's University.
VALUATION OF FUND SHARES
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Shares of the Fund are sold at their net asset value per share ("NAV"), which is
determined by the Fund as of the close of regular trading (generally 4:00 p.m.
eastern time) on each day that the New York Stock Exchange (the "Exchange") is
open for unrestricted business. Purchase and redemption requests are priced at
the next NAV calculated after receipt and acceptance of a completed purchase or
redemption request. The NAV is determined by dividing the value of the Fund's
securities, cash and other assets, minus all expenses and liabilities, by the
number of shares outstanding (assets-liabilities / # of shares outstanding =
NAV). The NAV takes into account the expenses and fees of the Fund, including
management, administration and shareholder servicing fees, which are accrued
daily.
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The Fund's portfolio securities are valued each day at the last quoted sales
price on the securities' principal exchange. If market quotations are not
readily available, securities will be valued at their fair market value as
determined in good faith in accordance with procedures approved by the Board of
Directors. The Fund may use independent pricing services to assist in
calculating the NAV.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times when the Exchange is
closed. In computing the Fund's NAV, the investment adviser values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the Exchange. Certain foreign currency
exchange rates may also be determined at the latest rate prior to the closing of
the Exchange. Foreign securities quoted in foreign currencies are translated
into U.S. dollars at current rates. Occasionally, events that affect these
values and exchange rates may occur between the times at which they are
determined and the closing of the Exchange. If such events materially affect the
value of portfolio securities, these securities may be valued at their fair
value as determined in good faith by the Fund's Board of Directors.
HOW TO PURCHASE SHARES
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IN GENERAL
Shares of the Fund are sold at NAV, without a sales charge, and will be credited
to a shareholder's account at the NAV next computed after an order is received.
The minimum initial investment for both Regular Accounts and Individual
Retirement Accounts is $1,000. The minimum subsequent investment for both types
of accounts is $100. The Fund reserves the right to reject any purchase order
if, in its opinion, it is in the Fund's best interest to do so. A service fee of
$25.00 will be deducted from your Fund account for any purchases that do not
clear due to insufficient funds.
INVESTING BY TELEPHONE
If you have completed the Telephone Purchase Authorization section of the New
Account Application Form, you may purchase additional shares by telephoning the
Fund toll free at (800) 930-3828. This option allows investors to move money
from their bank account to their Fund account upon request. Only bank accounts
held at domestic institutions that are Automated Clearing House (ACH) members
may be used for telephone transactions.
The minimum telephone purchase is $100. YOU MAY NOT USE TELEPHONE TRANSACTIONS
FOR YOUR INITIAL PURCHASE OF FUND SHARES.
AUTOMATIC INVESTMENT PLAN
Once an account has been established, you may purchase shares of the Fund
through an Automatic Investment Plan ("AIP"). You can have money automatically
transferred from your checking, savings or bank money market account on a
weekly, bi-weekly, monthly, bi-monthly or quarterly basis.
To be eligible for this plan, your bank must be a domestic institution that is
an ACH member. The Fund may modify or terminate the AIP at any time. The first
AIP purchase will take place no earlier than 15 days after the Transfer Agent
has received your request.
PURCHASE BY MAIL
To purchase Fund shares by mail, simply complete and sign the enclosed New
Account Application Form and mail it, along with a check or money order made
payable to The Medical Fund to:
Regular Mail: Overnight or Express Mail:
Kinetics Mutual Funds, Inc. Kinetics Mutual Funds, Inc.
The Medical Fund The Medical Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
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PURCHASE BY WIRE
Before wiring any funds please call (800) 930-3828 to notify the Fund that the
wire is coming and to verify the proper wire instructions so that the wire is
properly applied when received. The Fund is not responsible for delays resulting
from the banking or Federal Reserve wire system. Please use the wiring
instructions as follow:
o Wire to: Firstar Bank Milwaukee, N.A.
o ABA Number: 0750-00022
o Credit: Firstar Mutual Fund Services, LLC
o Account: 112-952-137
o Further Credit: Kinetics Mutual Funds, Inc.
The Medical Fund
(Shareholder Name/Account Registration)
(Shareholder Account Number)
Immediately send a completed New Account Application Form to the Fund at the
above address to have all accurate information recorded to your account.
SUBSEQUENT INVESTMENTS
You may add to your account at any time by purchasing shares by mail, by
telephone, or by wire (minimum $100). You must call to notify the Fund (800)
930-3828 before wiring. A remittance form, which is attached to your individual
account statement, should accompany any investments made through the mail.
All purchase requests must include your shareholder account number.
INDIVIDUAL RETIREMENT ACCOUNTS
You may invest in the Fund by establishing a tax-sheltered individual retirement
account. The Fund offers Traditional IRA, Roth IRA, and Educational IRA. For
additional information on IRA options, please call (800) 930-3828.
INVESTING THROUGH BROKERS OR AGENTS
You may invest in the Fund through brokers or agents who have entered into
selling agreements with the Fund's distributor. The broker or agent may set
their own initial and subsequent investment minimums. You may be charged a fee
if you use a broker or agent to buy or redeem shares of the Fund.
HOW TO REDEEM SHARES
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IN GENERAL
You may redeem part or all of your Fund shares on any business day that the Fund
calculates the NAV. To redeem shares, you must contact the Fund either by mail
or by phone to place a redemption order. You should request your redemption
prior to market close to obtain that day's closing NAV. Redemption requests
received after the close of the Exchange (currently 4:00 pm EST) will be treated
as though received on the next business day.
The Fund will generally mail redeemed proceeds the next business day and, in any
event, no later than seven days after the receipt of a redemption request in
"good order" (see below). Note, however, that when a purchase order has been
made by check, or ACH purchase, the Fund will not be able to honor your
redemption request until the check or ACH purchase has cleared. This may take up
to 12 days.
Redemption requests will be sent to the address of record. If the proceeds of
redemption are requested to be sent to an address other than the address of
record or if the address of record has been changed within 15 days of the
redemption request, the request must be in writing with your signature
guaranteed. Signature guarantees can be obtained from banks and securities
dealers, but not from a notary public. The Fund is not responsible for interest
lost on redemption amounts due to lost or misdirected mail.
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WRITTEN REDEMPTION
Most redemptions can be executed by the investor furnishing an unconditional
written request to the Fund to redeem his or her shares at the current NAV.
Redemption requests in writing should be sent to the Transfer Agent at:
Regular Mail: Overnight or Express Mail:
Kinetics Mutual Funds, Inc. Kinetics Mutual Funds, Inc.
The Medical Fund The Medical Fund
c/o Firstar Mutual Fund Services, LLC c/o Firstar Mutual Fund Services, LLC
P.O. Box 701 615 East Michigan Street, 3rd Floor
Milwaukee, WI 53201-0701 Milwaukee, WI 53202
Requests for redemption in "good order" must:
o indicate the name of the Fund,
o be signed exactly as the shares are registered, including the signature of
each owner,
o specify the number of shares or dollar amount to be redeemed,
o indicate your account registration number, and
o include the investor's social security number or tax identification number.
TELEPHONE REDEMPTION
If you are authorized to perform telephone transactions (either through your New
Account Application Form or by subsequent arrangement in writing with the Fund)
you may redeem shares in any amount, but not less than $100 by instructing the
Fund by phone at (800) 930-3828. A signature guarantee is required of all
shareholders in order to qualify for or to change telephone redemption
privileges.
NOTE: Neither the Fund nor any of its service contractors will be liable for any
loss or expense in acting upon instructions that are reasonably believed to be
genuine. To confirm that all telephone instructions are genuine, the Fund will
use reasonable procedures, such as requesting:
o that a shareholder correctly state his or her Fund account number
o the name in which his or her account is registered
o the social security or tax identification number under which the account is
registered
o address of the account holder, as stated in the New Account Application
Form
WIRE REDEMPTION
Wire transfers may be arranged to redeem shares. However, the transfer agent
charges a $12 fee per wire redemption against your account for this service. The
minimum wire redemption amount is $100.
SYSTEMATIC WITHDRAWAL PLAN
If you own shares with a value of $10,000 or more, you may participate in the
Systematic Withdrawal Plan. The Systematic Withdrawal Plan allows you to make
automatic withdrawals from your account at regular intervals. Money will be
transferred from your Fund account to the account you chose at the interval you
select on the New Account Application Form. If you expect to purchase additional
Fund shares, it may not be to your advantage to participate in the Systematic
Withdrawal Plan because of the possible adverse tax consequences of making
contemporaneous purchases and redemptions.
THE FUND'S RIGHT TO REDEEM AN ACCOUNT
The Fund reserves the right to redeem the shares of any shareholder whose
account balance is less than $500, other than as a result of a decline in the
NAV of the Fund or unless the shareholder is an active participant in the AIP.
The Fund will provide a shareholder with written notice 30 days prior to
redeeming the account.
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IRA REDEMPTION
If you are an IRA shareholder, you must indicate on your redemption request
whether or not to withhold federal income tax. Requests that do not indicate a
preference will be subject to withholding.
EXCHANGE PRIVILEGE
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You can exchange your shares in the Fund for shares of the same class of The
Internet Fund, Inc. or any other series of Kinetics Mutual Funds, Inc. at a cost
of $5 per exchange transaction. The prospectus and statement of additional
information of The Internet Fund, Inc. should be read carefully prior to any
exchange for shares in that fund and retained for future reference. Be advised
that exercising the exchange privilege consists of two transactions: a sale of
shares in one fund and the purchase of shares in another. Further, exchanges may
have certain tax consequences and you could realize short- or long-term capital
gains or losses. Exchanges are generally made only between identically
registered accounts unless you send written instructions with a signature
guarantee requesting otherwise.
Call (800) 930-3828 to learn more about The Internet Fund, Inc. and about
exercising your exchange privilege.
DISTRIBUTION AND TAXES
- --------------------------------------------------------------------------------
DISTRIBUTIONS
Distributions (whether treated for tax purposes as ordinary income or long-term
capital gains) to shareholders of the Fund are paid in additional shares of the
Fund, with no sales charge, based on the Fund's NAV as of the close of business
on the record date for such distributions. However, you may elect on the
application form to receive distributions as follows:
OPTION 1: To receive income dividends in cash and capital gain distributions in
additional Fund shares, or
OPTION 2: To receive all income dividends and capital gain distributions in
cash.
The Fund intends to pay any dividends from investment company taxable income and
distributions representing capital gain at least annually, usually in November.
The Fund will advise each shareholder annually of the amounts of dividends from
investment company taxable income and of net capital gain distributions
reinvested or paid in cash to the shareholder during the calendar year.
If you select Option 1 or Option 2 and the U.S. Postal Service cannot deliver
your distribution checks, or if your distribution checks remain uncashed for six
months, your distribution checks be will reinvested in your account at the then
current NAV and your election will be converted to the purchase of additional
shares.
TAXES
The Fund intends to continue to qualify and elect to be taxed as a regulated
investment company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). In any taxable year in which the Fund so qualifies and
distributes at least 90% of its investment company taxable income (which
includes, among other items, dividends, interest, and the excess of realized net
short-term capital gain over realized net long-term capital loss), the Fund
generally will be relieved of Federal income tax on its investment company
taxable income and net capital gain (the excess of realized net long-term
capital gain over realized net short-term capital loss) distributed to
shareholders. Amounts not distributed on a timely basis in accordance with a
calendar distribution requirement are also subject to a nondeductible 4% excise
tax. To prevent application of the excise tax, the Fund intends to make its
distributions in accordance with the calendar year distribution requirement. A
distribution will be treated as paid on December 31 of the calendar year if it
is declared by the Fund in October, November, or December of that year to
shareholders of record on a date in such a month and paid by the Fund during
January of the following calendar year. Such distributions will be taxable to
shareholders in the calendar year the distributions are declared, rather than
the calendar year in which the distributions are received.
Distributions from investment company taxable income are taxable to shareholders
as ordinary income. Distributions of net capital gains designated by the Fund as
capital gains dividends are taxable as long-term capital gains regardless of the
10
<PAGE>
length of time a shareholder may have held shares of the Fund. The tax treatment
of distributions treated as ordinary income or capital gains will be the same
whether the shareholder reinvests the distributions in additional shares or
elects to receive them in cash. Shareholders will be notified each year of the
amounts and nature of dividends and distributions, including the amount (if any)
for that year that has been designated as capital gains distributions. Investors
should consult their tax advisers for specific information on the tax
consequences of particular types of distributions.
An exchange is not a tax-free transaction. An exchange of shares pursuant to the
Funds' exchange privilege is treated the same as an ordinary sale and purchase
for federal income tax purposes and you will realize a capital gain or loss.
On the account application, you will be asked to certify that your social
security number or taxpayer identification number is correct and that you are
not subject to backup withholding for failing to report income to the IRS. If
you are subject to backup withholding or you did not certify your taxpayer
identification number, the IRS requires the Fund to withhold 31% of any dividend
and redemption or exchange proceeds. The Fund reserves the right to reject any
application that does not include a certified social security or taxpayer
identification number.
DISTRIBUTION OF SHARES
- --------------------------------------------------------------------------------
DISTRIBUTOR
T.O. Richardson Securities, Inc., 2 Bridgewater Road, Farmington, Connecticut,
06032 is the distributor for the shares of the Fund. T.O. Richardson Securities,
Inc., is a registered broker-dealer and member of the National Association of
Securities Dealers, Inc. and serves as the distributor for numerous registered
investment companies across the United States.
SHAREHOLDER SERVICING AGENT
Kinetics is also responsible for paying various shareholder servicing agents for
performing shareholder servicing functions and maintaining shareholder accounts.
These agents have written shareholder servicing agreements with Kinetics and
perform these functions on behalf of their clients who own shares of the Fund.
For this service, Kinetics receives an annual shareholder servicing fee from the
Fund equal to 0.25% of the Fund's average daily net assets.
FUND ADMINISTRATOR
Kinetics also serves as Administrator to the Fund. Kinetics will be entitled to
receive an annual administration fee equal to 0.15% of the Fund's average daily
net assets, out of which it will be responsible for the payment of a portion of
such fees to Firstar Mutual Fund Services, LLC ("Firstar") for certain
sub-administrative services rendered to the Fund by Firstar.
CUSTODIAN, TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND FUND ACCOUNTANT
Firstar Bank Milwaukee, N.A. serves as Custodian for the Fund's cash and
securities. The Custodian does not assist in, and is not responsible for,
investment decisions involving assets of the Fund. Firstar, the Fund's
Sub-Administrator, also acts of the Fund's Transfer Agent, Dividend Disbursing
Agent and Fund Accountant.
MASTER/FEEDER FUND STRUCTURE
- --------------------------------------------------------------------------------
ELECTION TO INVEST FUND ASSETS PURSUANT TO MASTER/FEEDER STRUCTURE
In lieu of investing directly, the Fund is authorized to seek to achieve its
investment objective by converting to a Master/Feeder Fund Structure pursuant to
which the Fund would invest all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund. The Master/Feeder Fund Structure is an arrangement that allows several
investment companies with different shareholder-related features or distribution
channels, but having substantially the same investment objective, policies and
restrictions, to combine their investments by investing all of their assets in
the same portfolio instead of managing them separately thus achieving certain
economies of scale. There is no present intention to convert the Fund to a
Master/Feeder Fund Structure.
The SAI contains more information about the Fund, Master/Feeder Fund Structure
and the types of securities in which the Fund may invest.
11
<PAGE>
COUNSEL AND INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
Legal matters in connection with the issuance of shares of common stock of the
Fund are passed upon by Spitzer & Feldman P.C., 405 Park Avenue, New York, New
York 10022. McCurdy & Associates, CPA's, Inc., 27955 Clemens Road, Westlake,
Ohio 44145, have been selected as independent auditors for the Fund.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Because the Fund has not yet commenced investment operations to date, there are
no financial highlights to report.
12
<PAGE>
The Medical Fund
Purchase Application
Mail To: The Medical Fund
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Overnight Express Mail To: The Medical Fund
c/o Firstar Mutual Fund Services, LLC
615 E. Michigan St., 3rd Floor
Milwaukee, WI 53202-5207
Use this form for individual, custodial, trust, profit sharing or pension plan
accounts. Do not use this form for The Medical Fund sponsored IRA or SEP IRA
accounts. For any additional information please call The Medical Fund at
800-930-3828.
A. Investment
o By check Payable to The Medical Fund. Amount $ _______________ ($ 1,000.00
minimum).
B. Registration
o Individual
- ---------- ---- --------- ----------------- --------------------
first name m.i. last name social security # birthdate (Mo/Dy/Yr)
o Joint Owner
- ---------- ---- --------- ----------------- --------------------
first name m.i. last name social security # birthdate (Mo/Dy/Yr)
*Registration will be Joint Tenancy with Rights of Survivorship (JTWROS), unless
otherwise specified.
o Gift to Minors
- ------------------------------------------- -- ---------
custodian's first name (only one permitted) mi last name
- --------------------------------------- -- ---------
minor's first name (only one permitted) mi last name
- ------------------------- ---------------------------- ------------------
minor's social security # minor's birthdate (Mo/Dy/Yr) state of residence
o Corporation/Trust**
-------------------------------------------------------
name of trustee(s) *(if to be included in registration)
o Partnership*
---------------------------------------
name of trust/corporation/**partnership
o Other Entity*
------------------------- -----------------------------
social security #/tax id# date of agreement (Mo/Dy/Yr)
*Additional documentation and certification may be requested. **Corporate
Resolution is required.
C. Distribution Options:
Capital gains & dividends will be reinvested if no option is selected.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Capital Gains & Capital Gains & Capital Gains in Cash & Capital Gains Reinvested
Dividends Reinvested o Dividends in Cash o Dividends Reinvested o & Dividends in Cash o
</TABLE>
Unless otherwise indicated, cash distributions will be mailed to the address in
Section D.
D. Mailing Address
------ ---------
Street apt/suite
---- ----- ---
city state zip
--------------- ---------------
daytime phone # evening phone #
o Duplicate Confirmation to:
---------- -- ---------
FIRST NAME MI LAST NAME
------ ---------
Street apt/suite
---- ----- ---
city state zip
E. Telephone and Internet Online Options
Your signed Application must be received at least 15 business days prior to
initial transaction.
To ensure proper debiting/ crediting of your bank account, an unsigned voided
check (for checking accounts) or a savings account deposit slip is required with
your Application.
<TABLE>
<CAPTION>
o Telephone Redemption.
<S> <C> <C> <C>
o Check to address shown on your account o Via EFT, at no charge, to your bank
o Via federal wire to your bank account below account below (funds are typically
($12.00 charge for each wire transfer) credited within two days after redemption)
</TABLE>
o Telephone Purchase (EFT). Permits the purchase of shares using your bank
account to clear the transaction. (Minimum $100.00) Complete bank account
information below.
---------------------------------------------------
Name(s) on Bank Account
--------- --------------
bank name account number
------------ -----------------
bank address Bank Routing/ABA#
o Online Options. If you have chosen telephone options for your account, you
may also elect to access your account online. (A Personal Identification
Number (PIN) will be mailed to your address of record.)
See reverse side of form
[2922] 9/98
<PAGE>
F. Automatic Investment Plan
Your signed Application must be received at least 15 business days prior to
initial transaction.
An unsigned voided check (for checking accounts) or a savings account deposit
slip is required with your Application.
Please start my Automatic Investment Plan as described in the Prospectus
beginning:
Month______Year _____. I hereby instruct Firstar Mutual Fund Services, LLC,
Transfer Agent for The Medical Fund to automatically transfer $ __________
(minimum $100.00) directly from my checking, NOW, or savings account named below
on the __________ of each month or the first business day thereafter. I
understand that I will be assessed a $25 fee if the automatic purchase cannot be
made due to insufficient funds, stop payment, or for any other reason. Automatic
investment plan contributions to your IRA will be reported as current year
contributions.
---------------------------------------------------
Name(s) on Bank Account
--------- --------------
bank name account number
------------ -----------------
bank address Bank Routing/ABA#
------------------------------- ------------------------
Signature of Bank account Owner Signature of Joint Owner
G. Systematic Withdrawals
I would like to withdraw from The Medical Fund $ ________________ ($100.00
minimum) as follows:
o I would like to have payments made to me on or about the __________ day of
each month, or
o I would like to have payments made to me on or about the __________ day of
the months that I have circled below:
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec.
o To have payments automatically deposited to your bank account. Complete
bank account information below. (A check will be mailed to the address in
Section D if this box is not checked.)
----------------------------------------------------
Name(s) on Bank Account
--------- --------------
bank name account number
------------ -----------------
bank address Bank Routing/ABA#
To ensure proper crediting of your bank account, please attach a voided check or
a deposit slip.
H. Signature and Certification Required by the Internal Revenue Service
I have received and read the Prospectus for The Medical Fund (the "Fund"). I
understand the Fund's investment objectives and policies and agree to be bound
by the terms of the Prospectus. I am of legal age in my state of residence and
have full authority to purchase shares of the Fund and to establish and use any
related privileges.
Neither the Fund nor its transfer agent will be responsible for the authenticity
of transaction instructions received by telephone, provided that reasonable
security procedures have been followed.
By selecting the options in Section E, F, or G, I hereby authorize the Fund to
initiate credits and debits to my account at the bank indicated and for the bank
to credit or debit the same to such account through the Automated Clearing House
("ACH") system.
Under the penalty of perjury, I certify that (1) the Social Security Number or
Taxpayer Identification Number shown on this form is my correct Taxpayer
Identification Number, and (2) I am not subject to backup withholding either as
a result of a failure to report all interest or dividends, or the IRS has
notified me that I am no longer subject to backup withholding. The IRS does not
require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
--------------- -------------------------------------
date (Mo/Dy/Yr) Signature of owner*
--------------- -------------------------------------
date (Mo/Dy/Yr) Signature of owner, if any
*If shares are to be registered in (1) joint names, both persons should sign,
(2) a custodian for a minor, the custodian should sign, (3) a trust, the
trustee(s) should sign, or (4) a corporation or other entity, an officer should
sign and print name and title on space provided below.
- --------------------------------------------------------------------------------
Print name and title of officer signing for a corporation or other entity
I. E-Mail
Please provide an E-Mail address if possible. This will be used to provide
important fund or fund related information.
<PAGE>
KINETICS MUTUAL FUNDS, INC.
The Medical Fund
Investment Adviser, Kinetics Asset Management, Inc.
Administrator, 477 Madison Avenue, 16th Floor
Shareholder New York, NY 10022
Servicing Agent
Legal Counsel Spitzer & Feldman P.C.
405 Park Avenue
New York, NY 10022
Independent McCurdy and Associates CPA's, Inc.
Auditors 27955 Clemens Road
Westlake, OH 44145
Transfer Agent, Firstar Mutual Fund Services, LLC
Fund Accountant, 615 East Michigan Street
Sub-Administrator Milwaukee, WI 53202
Custodian Firstar Bank Milwaukee, N.A.
615 East Michigan Street
Milwaukee, WI 53202
You may obtain the following and other information
on the Fund free of charge:
Statement of Additional Information
(SAI) dated September 27, 1999
The SAI for the Fund provides more details about the Fund's policies and
management. The Fund's SAI is incorporated by reference into this Prospectus.
Annual and Semi-Annual Report
Soon after the Fund has been operating for the appropriate time, annual and
semi-annual reports will be made available. The reports will provide the Fund's
most recent portfolio listings. The annual report will contain a discussion of
the market conditions and investment strategies that affected the Fund's
performance during the last fiscal year.
Telephone: (800) 930-3828
Mail: Kinetics Mutual Funds, Inc.
c/o Firstar Mutual Fund Services, LLC
P.O. Box 701
Milwaukee, WI 53201-0701
Internet: http://www.sec.gov (text only version)
SEC: You may also receive a text only version of Fund documents upon payment of
a duplicating fee, by writing the Public Reference Room of the SEC, Washington,
D.C. 20549-6009. Information about the Fund (including the SAI) can be reviewed
and copied at the SEC's Public Reference Room in Washington, D.C. Please call
the SEC at 1-800-SEC-0330 for information relating to the operation of the
Public Reference Room. 1940 Act File No. 811-09303
THE MEDICAL FUND
PROSPECTUS & APPLICATION
SEPTEMBER 27, 1999
A SERIES OF KINETICS MUTUAL FUNDS, INC.
(c) 1999, Kinetics Asset Management, Inc.
(PHOTO OF TEST TUBES)
<PAGE>
THE MEDICAL FUND
a series of Kinetics Mutual Funds, Inc.
477 Madison Avenue, 16th Floor
New York, NY 10022
(800) 930-3828
September 27, 1999
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information ("SAI") is not a prospectus and should
be read in conjunction with the Fund's current Prospectus dated September 27,
1999. To obtain a copy of the Prospectus, please write the Fund at the address
set forth above or call the telephone number shown above.
<PAGE>
THE MEDICAL FUND
The Fund.......................................................................3
Investment Objective, Strategies, and Risks....................................3
Investment Policies and Associated Risks.......................................3
Investment Restrictions........................................................5
Temporary Investments..........................................................6
Portfolio Turnover.............................................................6
Management of the Fund.........................................................7
Control Persons and Principal Holders of Securities............................8
Investment Adviser.............................................................9
Administrative Services........................................................9
Custodian.....................................................................10
Capitalization................................................................10
Valuation of Shares...........................................................10
Purchasing Shares.............................................................11
Redemption of Shares..........................................................11
Brokerage.....................................................................12
Taxes.........................................................................12
Performance Information.......................................................13
Independent Auditors..........................................................14
Financial Statements..........................................................15
Appendix......................................................................19
<PAGE>
THE FUND
- --------------------------------------------------------------------------------
The Medical Fund (the "Fund") is the initial series of Kinetics Mutual Funds,
Inc., a Maryland corporation incorporated on March 26, 1999. The Fund's
principal office is located at 477 Madison Avenue, 16th Floor, New York, New
York 10022. The Fund is a non-diversified, open-end management investment
company.
INVESTMENT OBJECTIVE, STRATEGIES, AND RISKS
- --------------------------------------------------------------------------------
The Fund's primary investment objective is long-term growth of capital. The Fund
seeks to achieve its investment objective by investing primarily in common
stocks, convertible securities, warrants and other equity securities having the
characteristics of common stocks, such as American Depositary Receipts and
International Depositary Receipts of domestic and foreign companies engaged in
the medical research, pharmaceutical and technology industries and related
medical technology industries, generally, with an emphasis toward companies
engaged in cancer research and drug development. The Fund is designed for
long-term investors who understand and are willing to accept the risk of loss
involved in investing in a mutual fund seeking long-term capital growth.
INVESTMENT POLICIES AND ASSOCIATED RISKS
- --------------------------------------------------------------------------------
The following paragraphs provide a more detailed description of the Fund's
investment policies and their associated risks identified in the Prospectus.
Unless otherwise noted, the policies described in this SAI are not fundamental
and may be changed by the Board of Directors.
COMMON AND PREFERRED STOCK
Common stocks are units of ownership of a corporation. Preferred stocks are
stocks that often pay dividends at a specific rate and have a preference over
common stocks in dividend payments and liquidation of assets. Some preference
stocks may be convertible into common stock. Convertible securities are
securities that may be converted into or exchanged for a specified amount of
common stock of the same or different issuer within a particular period of time
at a specified price or formula.
CONVERTIBLE DEBT SECURITIES
The Fund may invest in debt securities convertible into common stocks. Debt
purchased by the Fund will consist of obligations of medium-grade or higher,
having at least adequate capacity to pay interest and repay principal.
Non-convertible debt obligations will be rated BBB or higher by S&P, or Baa or
higher by Moody's. Convertible debt obligations will be rated B or higher by S&P
or B or higher by Moody's. Securities rated Baa by Moody's are considered by
Moody's to be medium-grade securities and have adequate capacity to pay
principal and interest. Bonds in the lowest investment grade category (BBB) have
speculative characteristics, with changes in the economy or other circumstances
more likely to lead to a weakened capacity of the bonds to make principal and
interest payments than would occur with bonds rated in higher categories.
Securities rated B are referred to as "high-risk" securities, generally lack
characteristics of a desirable investment, and are deemed speculative with
respect to the issuer's capacity to pay interest and repay principal over a long
period of time. See "Appendix" to this Statement of Additional Information for a
description of debt security ratings.
FIXED-INCOME SECURITIES
The fixed-income securities in which the Fund may invest are generally subject
to two kinds of risk: credit risk and market risk.
CREDIT RISK relates to the ability of the issuer to meet interest and principal
payments, as they come due. The ratings given a security by Moody's and S&P
provide a generally useful guide as to such credit risk.
<PAGE>
The lower the rating given a security by such rating service, the greater the
credit risk such rating service perceives to exist with respect to such
security. Increasing the amount of Fund assets invested in unrate or lower-grade
securities, while intended to increase the yield produced by those assets, also
will increase the credit risk to which those assets are subject.
MARKET RISK relates to the fact that the market values of securities in which
the Fund may invest generally will be affected by changes in the level of
interest rates. An increase in interest rates will tend to reduce the market
values of such securities, whereas a decline in interest rates will tend to
increase their values. Medium- and lower-rated securities (Baa or BBB and lower)
and non-rated securities of comparable quality tend to be subject to wilder
fluctuations in yields and market values than higher-rated securities.
Medium-rated securities (those rated Baa or BBB) have speculative
characteristics while lower-rated securities are predominantly speculative. The
Fund is not required to dispose of debt securities whose ratings are downgraded
below these ratings subsequent to the Fund's purchase of the securities. Relying
in part on ratings assigned by credit agencies in making investments will not
protect the Fund from the risk that fixed-income securities in which the Fund
invests will decline in value, since credit ratings represent evaluations of the
safety of principal, and dividend and interest payments on preferred stocks and
debt securities, not the market values of such securities, and such ratings may
not be changed on a timely basis to reflect subsequent events.
At no time will the Fund have more than 5% of its total assets invested in any
fixed-income securities that are unrated or are rated below investment grade
either at the time of purchase or as a result of a reduction in rating after
purchase.
DEPOSITARY RECEIPTS. The Fund may invest in American Depositary Receipts
("ADRs") or other forms of depositary receipts, such as International Depositary
Receipts ("IDRs"). Depositary receipts are typically issued in connection with a
U.S. or foreign bank or trust company which evidence ownership of underlying
securities issued by a foreign corporation. Investments in these types of
foreign securities involve certain inherent risks generally associated with
investments in foreign securities, including the following:
POLITICAL AND ECONOMIC FACTORS. Individual foreign economies of certain
countries may differ favorably or unfavorably from the United States' economy in
such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency, diversification and balance of payments
position. The internal politics of certain foreign countries may not be as
stable as those of the United States. Governments in certain foreign countries
also continue to participate to a significant degree, through ownership interest
or regulation, in their respective economies. Action by these governments could
include restrictions on foreign investment, nationalization, expropriation of
goods or imposition of taxes, and could have a significant effect on market
prices of securities and payment of interest. The economies of many foreign
countries are heavily dependent upon international trade and are accordingly
affected by the trade policies and economic conditions of their trading
partners. Enactment by these trading partners of protectionist trade legislation
could have a significant adverse effect upon the securities markets of such
countries.
CURRENCY FLUCTUATIONS. A change in the value of any foreign currency
against the U.S. dollar will result in a corresponding change in the U.S. dollar
value of an ADR's underlying portfolio securities denominated in that currency.
Such changes will affect the Fund to the extent that the Fund is invested in
ADR's comprised of foreign securities.
TAXES. The interest and dividends payable on certain foreign securities
comprising an ADR may be subject to foreign withholding taxes, thus reducing the
net amount of income to be paid to the Fund and that may, ultimately, be
available for distribution to the Fund's shareholders.
ELECTION TO INVEST FUND ASSETS PURSUANT TO MASTER/FEEDER FUND STRUCTURE
<PAGE>
In lieu of investing directly, the Fund is authorized to seek to achieve its
investment objective by converting to a Master/Feeder Fund Structure pursuant to
which the Fund would invest all of its investable assets in an investment
company having substantially the same investment objective and policies as the
Fund. The Master/Feeder Fund Structure is an arrangement that allows several
investment companies with different shareholder-related features or distribution
channels, but having substantially the same investment objective, policies and
restrictions, to combine their investments by investing all of their assets in
the same portfolio instead of managing them separately.
Conversion to a Master/Feeder Fund Structure may serve to attract other
collective investment vehicles with different shareholder servicing or
distribution arrangements and with shareholders that would not have invested in
the Fund. In this event, additional assets may allow for operating expenses to
be spread over a larger asset base. In addition, a Master/Feeder Fund Structure
may serve as an alternative for large, institutional investors in the Fund who
may prefer to offer separate, proprietary investment vehicles and who otherwise
might establish such vehicles outside of the Fund's current operational
structure. Conversion to a Master/Feeder Fund Structure may also allow the Fund
to stabilize its expenses and achieve certain operational efficiencies. No
assurance can be given, however, that the Master/Feeder Fund Structure will
result in the Fund stabilizing its expenses or achieving greater operational
efficiencies.
The Fund's methods of operation and shareholder services would not be materially
affected by its investment in another investment company ("Master Portfolio")
having substantially the same investment objective and polices as the Fund,
except that the assets of the Fund may be managed as part of a larger pool. If
the Fund invested all of its assets in a Master Portfolio, it would hold only
beneficial interests in the Master Portfolio; the Master Portfolio would
directly invest in individual securities of other issuers. The Fund would
otherwise continue its normal operation. The Board of Directors would retain the
right to withdraw the Fund's investment from its corresponding Master Portfolio
at any time it determines that it would be in the best interest of shareholders;
the Fund would then resume investing directly in individual securities of other
issuers or invest in another Master Portfolio.
There is no present intention to convert the Fund to a Master/Feeder Fund
structure. The Board of Directors has authorized this fundamental investment
policy to facilitate such a conversion in the event that the Board of Directors
determines that such a conversion is in the best interest of the Fund's
shareholders. If the Board of Directors so determines, it will consider and
evaluate specific proposals prior to the implementation of the conversion to a
Master/Feeder Fund Structure. Further, the Fund's Prospectus and SAI would be
amended to reflect the implementation of the Fund's conversion and its
shareholders would be notified.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The Fund is subject to certain investment restrictions described here, which may
be changed only with the approval of the holders of a majority of the Fund's
outstanding shares.
1. The Fund will not act as underwriter for securities of other issuers except
to the extent the Fund may be deemed an underwriter in selling its own
portfolio securities.
2. The Fund will not make loans. The purchase of a portion of a readily
marketable issue of publicly distributed bonds, debentures or other debt
securities will not be considered the making of a loan.
3. With respect to 50% of its total assets, the Fund will not invest in the
securities of any issuer if as a result the Fund holds more than 10% of the
outstanding securities or more than 10% of the outstanding voting
securities of such issuer.
4. The Fund will not borrow money or pledge, mortgage, or hypothecate its
assets except to facilitate redemption requests that might otherwise
require untimely disposition of portfolio securities and then
<PAGE>
only from banks and in amounts not exceeding the lesser of 10% of its total
assets valued at cost or 5% of its total assets valued at market at the
time of such borrowing, pledge, mortgage, or hypothecation and except that
the Fund may enter into futures contracts and related options.
5. The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, restricted securities, and other securities for which
market quotations are not readily available.
6. The Fund will not invest in the securities of any one industry except in
domestic and foreign companies engaged in the medical research,
pharmaceutical and technology industries and related medical technology
industries, generally, with an emphasis toward companies engaged in cancer
research and drug development, with the exception of securities issued or
guaranteed by the U.S. Government, its agencies, and instrumentality's, if
as a result, more than 20% of the Fund's total assets would be invested in
the securities of such industry. Except during temporary defensive periods,
not less than 65% of the Fund's total assets will be invested in the
securities of companies engaged in the medical research, pharmaceutical and
technology industries and related technology industries, generally, with an
emphasis toward publicly traded entities engaged in cancer research and
drug development.
7. The Fund will not purchase or sell commodities or commodity contracts, or
invest in oil, gas or mineral exploration or development programs or real
estate except that the Fund may purchase and sell securities of companies
that deal in oil, gas, or mineral exploration or development programs or
interests therein.
8. The Fund will not issue senior securities.
If a percentage limitation is satisfied at the time of investment, a later
increase or decrease in such percentage resulting from a change in value in the
Fund's portfolio securities will not constitute a violation of such limitation.
However, in the event that the Fund's portfolio holdings in illiquid securities
reach 15% of the value of its net assets, the Adviser is authorized by the Board
of Directors to make such adjustments as necessary to reduce the holdings of
illiquid securities to comply with the guidelines of paragraph number 5 above.
TEMPORARY INVESTMENTS
- --------------------------------------------------------------------------------
Due to the changing nature of the medical research, biopharmaceutical and
treatment industry, the national economy and market conditions, the Fund may, as
a temporary defensive measure, invest without limitation, in short-term money
market securities with a rating of A2-P2 or higher.
In order to have funds available for redemption and investment opportunities,
the Fund may also hold a portion of its portfolio in cash or U.S. short-term
money market instruments. Certificates of deposit purchased by the Fund will be
those of U.S. banks having total assets at the time of purchase in excess of $1
billion, and bankers' acceptances purchased by the Fund will be guaranteed by
U.S. or foreign banks having total assets at the time of purchase in excess of
$1 billion. The Fund anticipates that not more than 10% of its total assets will
be so invested or held in cash at any given time, except when the Fund is in a
temporary defensive posture.
PORTFOLIO TURNOVER
- --------------------------------------------------------------------------------
In order to qualify for the beneficial tax treatment afforded regulated
investment companies, and to be relieved of Federal tax liabilities, the Fund
must distribute substantially all of its net income to shareholders generally on
an annual basis. Thus, the Fund may have to dispose of portfolio securities
under disadvantageous circumstances to generate cash or borrow cash in order to
satisfy the distribution
<PAGE>
requirement. The Fund does not trade in securities for short-term profits but,
when circumstances warrant, securities may be sold without regard to the length
of time they have been held.
MANAGEMENT OF THE FUND
- --------------------------------------------------------------------------------
BOARD OF DIRECTORS
The Fund is managed by a Board of Directors. The Fund's Board of Directors
consist of eight individuals, six of whom are not "interested persons" of the
Fund as that term is defined in the Investment Company Act of 1940, as amended
(the "1940 Act"). The Directors are fiduciaries for the Fund's shareholders and
are governed by the laws of the State of Maryland in this regard. They establish
policies for the operation of the Fund and appoint the officers who conduct the
daily business of the Fund. Officers and directors are listed below with their
addresses, present positions with the Fund and principal occupations over at
least the last five years.
<TABLE>
<CAPTION>
- ----------------------------------- --------- ------------------------ -------------------------------------------
NAME AND ADDRESS AGE POSITION PRINCIPAL OCCUPATION
DURING THE PAST FIVE YEARS
- ----------------------------------- --------- ------------------------ -------------------------------------------
<S> <C> <C> <C>
*Steven R. Samson 45 President & Chairman President and CEO, Kinetics Asset
342 Madison Avenue of the Board Management, Inc. (1999 to Present);
New York, NY 10173 President, The Internet Fund, Inc. (1999
to Present); Managing Director, Chase
Manhattan Bank (1993 to 1993).
- ----------------------------------- --------- ------------------------ -------------------------------------------
*Kathleen Campbell 34 Director Attorney, Campbell and Campbell,
2 Madison Avenue Counselors-at-Law (1995 to Present).
Valhalla, NY 10595
- ----------------------------------- --------- ------------------------ -------------------------------------------
Steven T. Russell 36 Independent Director Attorney and Counselor at Law,
146 Fairview Avenue Steven Russell Law Firm (1994 to
Bayport, NY 117045 Present); Professor of Business Law,
Suffolk County Community College (1997 to
Present).
- ----------------------------------- --------- ------------------------ -------------------------------------------
Douglas Cohen, C.P.A 36 Independent Director Wagner, Awerma & Strinberg, LLP Certified
6 Saywood Lane Public Accountant (1997 to present); Leon
Stonybrook, NY 11790 D. Alpern & Co. (1985 to 1997)
- ----------------------------------- --------- ------------------------ -------------------------------------------
William J. Graham 37 Independent Director Attorney, Bracken & Margolin, LLP (1997
20 Franklin Boulevard to Present).
Long Beach, NY 11561 Gabor & Gabor (1995 to 1997)
- ----------------------------------- --------- ------------------------ -------------------------------------------
Murray Stahl 46 Independent Director President, Horizon Asset Management, an
342 Madison Avenue investment adviser (1994 to Present).
New York, NY 10173
- ----------------------------------- --------- ------------------------ -------------------------------------------
Joseph E. Breslin 45 Independent Director Senior Vice President, Marketing & Sales,
One State Street IBJ Whitehall Financial Group, a financial
New York, NY 10004 services company (1999 to Present); formerly
President, J.E. Breslin & Co., an investment
management consulting firm (1994 to 1999).
- ----------------------------------- --------- ------------------------ -------------------------------------------
John J. Sullivan 68 Independent Director Retired; Senior Advisor, Long Term Credit
31 Hemlock Drive Bank of Japan, Ltd.; Executive Vice
Sleepy Hollow, NY 10591 President, LTCB Trust Company.
- ----------------------------------- --------- ------------------------ -------------------------------------------
<PAGE>
Lee W. Schultheis 43 Vice President & Managing Director & COO of Kinetics Asset
342 Madison Avenue Treasurer Management (1999 to Present); President &
New York, NY 10173 Director of Business. Development, Vista
Fund Distributor, Inc. (1995 to 1999);
Managing Director, Forum Financial Group,
a mutual fund services company.
- ----------------------------------- --------- ------------------------ -------------------------------------------
</TABLE>
*Interested persons as defined in the 1940 Act.
Compensation
For their service as Directors, the Independent Directors receive a fee of $5000
per year and $1000 per meeting attended, as well as reimbursement for expenses
incurred in connection with attendance at such meetings. The "interested
persons" of the Fund receive no compensation for their service as Directors.
Because the Fund has recently commenced investment operations, the Independent
Directors have not received any compensation at this time. None of the executive
officers receive compensation from the Fund.
<TABLE>
<CAPTION>
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
NAME AND POSITION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON FROM TRUST AND FUND
FROM TRUST PART OF TRUST EXPENSES RETIREMENT COMPLEX PAID TO
TRUSTEES
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Steven R. Samson None None None None
Chairman and Director
Kathleen Campbell None None None None
Director
Steven T. Russell None None None None
Independent Director
Douglas Cohen, CPA None None None None
Independent Director
William J. Graham None None None None
Independent Director
Murray Stahl None None None None
Independent Director
Joseph E. Breslin None None None None
Independent Director
John J. Sullivan None None None None
Independent Director
- --------------------------------------------------------------------------------
</TABLE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
- --------------------------------------------------------------------------------
Currently, there are no control persons or principal holders of securities of
the Fund. Control persons are persons deemed to control the Fund because they
beneficently own in excess of 25% of the outstanding equity securities.
Principal holders are persons that beneficially own 5% more of the Fund's
outstanding shares.
MANAGEMENT OWNERSHIP
As a group, the officers and directors of the Fund own less than 1% of the
outstanding shares of the Fund.
<PAGE>
INVESTMENT ADVISER
- --------------------------------------------------------------------------------
Kinetics Asset Management, Inc. ("Kinetics" or the "Adviser") is a New York
corporation that serves as the investment adviser to the Fund. Peter B. Doyle
is the Chairman of the Board of Directors and Chief Investment Strategist
of Kinetics Asset Management, Inc. Steven R. Samson is the President and Chief
Executive Officer of Kinetics Asset Management, Inc.. Mr. Samson has over 24
years experience the mutual funds and financial services industries. Mr. Samson
is the president of The Internet Fund, Inc. Mr. Lee Schultheis is the Managing
Director and Chief Operating Officer of Kinetics Asset Management, Inc. Mr.
Schultheis has more than 20 years experience in the mutual funds and financial
services industries.
On September 1, 1999, the Board of the Directors of the Fund approved a
management and advisory contract (the "Agreement") with Kinetics. Following its
initial two-year period, this Agreement will continue on a year-to-year basis
provided that specific approval is voted at least annually by the Board of
Directors of the Fund or by the vote of the holders of a majority of the
outstanding voting securities of the Fund. In either event, it must also be
approved by a majority of the directors of the Fund who are neither parties to
the Agreement nor "interested persons" as defined in the 1940 Act at a meeting
called for the purpose of voting on such approval. The Adviser's decisions are
made subject to direction of the Fund's board of directors. The Agreement may be
terminated at any time, without the payment of any penalty, by the Board of
Directors or by vote of a majority of the outstanding voting securities of the
Fund. Ultimate decisions as to the investment policy and as to individual
purchases and sales of securities are made by the Fund's officers and Board of
Directors.
Under the Agreement, Kinetics furnishes investment advice to the Fund by
continuously reviewing the portfolio and recommending to the Fund when, and to
what extent, securities should be purchased or disposed. Pursuant to the
Agreement, the Adviser:
(1) renders research, statistical and advisory services to the Fund;
(2) makes specific recommendations based on the Fund's investment
requirements;
(3) pays the salaries of those of the Fund's employees who may be officers
or directors or employees of the investment adviser.
For these services, the Fund has agreed to pay to Kinetics an annual fee of
1.25% of the Fund's average daily net assets. All fees are computed on the
average daily closing net asset value of the Fund and are payable monthly. The
fee is higher than the fee paid by most other funds.
Fees of the custodian, administrator, fund accountant and transfer agent are
paid by the Fund. The Fund pays all other expenses, including:
o fees and expenses of directors not affiliated with the Adviser; o legal and
accounting fees; o interest, taxes, and brokerage commissions; and o record
keeping and the expense of operating its offices.
The Adviser receives a shareholder servicing fee pursuant to a Shareholder
Servicing Agreement in an amount equal to 0.25% of the Fund's average daily net
assets. The Adviser is responsible for paying a portion of these shareholder
servicing fees to various shareholder servicing agents which have a written
shareholder servicing agreement with the Adviser and which perform shareholder
servicing functions and maintenance of shareholder accounts on behalf of their
clients who own shares of the Fund.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Kinetics also serves as Administrator of the Fund. Under an Administrative
Services Agreement with the Fund, Kinetics will be entitled to receive an annual
administration fee equal to 0.15% of the Fund's
<PAGE>
average daily net assets, of which the Adviser will be responsible for the
payment of a portion of such fees to Firstar Mutual Fund Services, LLC
("Firstar") for certain sub-administrative services rendered to the Fund by
Firstar.
Firstar, 615 East Michigan Street, Milwaukee, Wisconsin 53202, also serves as
the Fund's accountant and transfer agent. As such, Firstar provides certain
shareholder services and record management services as well as acts as the
Fund's dividend paying agent.
Administrative services include, but are not limited to, providing office space,
equipment, telephone facilities, various personnel, including clerical and
supervisory, and computers, as is necessary or beneficial to:
|X| establish and maintain shareholders' accounts and records, |X| process
purchase and redemption transactions, |X| process automatic investments of
client account cash balances, |X| answer routine client inquiries regarding the
Fund, |X| assist clients in changing dividend options, |X| account designations,
and addresses, and |X| providing such other services as the Fund may reasonably
request.
CUSTODIAN
- --------------------------------------------------------------------------------
Firstar Bank Milwaukee, N.A. is custodian for the securities and cash of the
Fund. Under the Custodian Agreement, Firstar Bank Milwaukee, N.A. holds the
Fund's portfolio securities in safekeeping and keeps all necessary records and
documents relating to its duties. The custodian receives an annual fee equal to
0.015% of the Fund's average daily net assets with a minimum annual fee of
$3,000.
CAPITALIZATION
- --------------------------------------------------------------------------------
The authorized capitalization of the Kinetics Mutual Funds, Inc. consists of
10,000,000 shares of common stock of $0.001 par value per share. Each share has
equal dividend, distribution and liquidation rights. There are no conversion or
preemptive rights applicable to any shares of the Fund. All shares issued are
fully paid and non-assessable. Each holder of common stock has one vote for each
share held. Voting rights are non-cumulative.
VALUATION OF SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold on a continual basis at the net asset value per
share next computed following acceptance of an order by the Fund. The Fund's net
asset value per share for the purpose of pricing purchase and redemption orders
is determined at the close of normal trading (currently 4:00 p.m. EST) on each
day the New York Stock Exchange ("NYSE") is open for trading. The NYSE is closed
on the following holidays: New Year's Day, Martin Luther King, Jr.'s Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Securities listed on a U.S. securities exchange or Nasdaq for which market
quotations are readily available are valued at the last quoted sale price on the
day the valuation is made. Price information on listed securities is taken from
the exchange where the security is primarily traded. Options, futures, unlisted
U.S. securities and listed U.S. securities not traded on the valuation date for
which market quotations are readily available are valued at the mean of the most
recent quoted bid and asked price.
<PAGE>
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. Fixed-income securities
purchased with remaining maturities of 60 days or less are valued at amortized
cost if it reflects fair value. In the event that amortized cost does not
reflect market, market prices as determined above will be used. 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 Directors of the Fund.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares of the Fund are sold in a continuous offering and may be purchased on any
business day though authorized investment dealers or directly from the Fund.
Except for the Fund itself, the investment dealers that have an effective sales
agreement with the Fund are authorized to sell shares of the Fund.
STOCK CERTIFICATES AND CONFIRMATIONS
The Fund does not intend to issue stock certificates representing shares
purchased. Confirmations of the opening of an account and of all subsequent
transactions in the account are forwarded by the Fund to the shareholder's
address of record.
SPECIAL INCENTIVE PROGRAMS
At various times the Fund may implement programs under which a dealer's sales
force may be eligible to win nominal awards for certain sales efforts or
recognition program conforming to criteria established by the Fund, or
participate in sales programs sponsored by the Fund. In addition, the Adviser,
in its discretion may from time to time, pursuant to objective criteria
established by the Adviser, sponsor programs designed to reward selected dealers
for certain services or activities that are primarily intended to result in the
sale of shares of the Fund. These program will not change the price you pay for
your shares or the amount that the Fund will receive from such sale.
INVESTING THROUGH AUTHORIZED BROKERS OR DEALERS
The Fund may have to authorize one or more brokers to accept purchase orders on
a shareholder's behalf. Brokers are authorized to designate intermediaries to
accept orders on the Fund's behalf. An order is deemed to be received when an
authorized broker or agent accepts the order. Orders will be priced at the
Fund's NAV next computed after they are accepted by an authorized broker or
agent.
If any authorized dealer receives an order of at least $1,000, the dealer may
contact the Fund directly. Orders received by dealers by the close of trading on
the NYSE on a business day that are transmitted to the Fund by 4:00 p.m. EST on
that day will be effected at the net asset value per share determined as of the
close of trading on the NYSE on that day. Otherwise, the orders will be effected
at the next determined net asset value. It is the dealer's responsibility to
transmit orders so that they will be received by the Distributor before 4:00
p.m. EST.
REDEMPTION OF SHARES
- --------------------------------------------------------------------------------
To redeem shares, shareholders may send a written request in "good order" to:
The Medical Fund
Kinetics Mutual Funds, Inc.
c/o Firstar Mutual Fund Services
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 930-3828
<PAGE>
A written request in "good order" to redeem shares must include:
|X| the shareholder's name,
|X| the fund name,
|X| the account number,
|X| the share or dollar amount to be redeemed, and
|X| signatures by all shareholders on the account.
The proceeds will be wired to the bank account of record or sent to the address
of record within seven days.
If shareholders request redemption proceeds be sent to an address other than
that on record with the funds or proceeds made payable other than to the
shareholder(s) of record, the written request must have signatures guaranteed
by:
|X| a trust company or commercial bank whose deposits are insured by the BIF,
which is administered by the FDIC;
|X| a member of the New York, Boston, American, Midwest, or Pacific Stock
Exchange;
|X| a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
|X| any other "eligible guarantor institution" as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
BROKERAGE
- --------------------------------------------------------------------------------
The Adviser requires all brokers to effect transactions in portfolio securities
in such a manner as to get prompt execution of the orders at the most favorable
price.
The Adviser selects brokers who, in addition to meeting primary requirements of
execution and price, may furnish statistical or other factual information and
services, which, in the opinion of the Adviser, are helpful or necessary to the
Fund's normal operations. Information or services may include economic studies,
industry studies, statistical analysis, corporate reports or other forms of
assistance to the Fund or its Adviser. No effort is made to determine the value
of these services or the amount they might have reduced expenses of the Adviser.
Other than set forth above, the Fund has no fixed policy, formula, method or
criteria that it uses in allocating brokerage business to brokers furnishing
these materials and services. The Board of Directors evaluates and reviews the
reasonableness of brokerage commissions paid semiannually.
TAXES
- --------------------------------------------------------------------------------
Under provisions of Sub-Chapter M of the Internal Revenue Code of 1986 as
amended, the Fund, by paying out substantially all of its investment income and
realized capital gains, has been and intends to continue to be relieved of
federal income tax on the amounts distributed to shareholders. In order to
qualify as a "regulated investment company" under Sub-Chapter M, at least 90% of
the Fund's income must be derived from dividends, interest and gains from
securities transactions. No more than 50% of the
<PAGE>
Fund's assets may be in security holdings that exceed 5% of the total assets of
the Fund at the time of purchase.
Distribution of any net long-term capital gains realized by the Fund will be
taxable to the shareholder as long-term capital gains, regardless of the length
of time Fund shares have been held by the investor. All income realized by the
Fund, including short-term capital gains, will be taxable to the shareholder as
ordinary income. Dividends from net income will be made annually or more
frequently at the discretion of the Fund's Board of Directors. Dividends
received shortly after purchase of shares by an investor will have the effect of
reducing the per share net asset value of his shares by the amount of such
dividends or distributions and, although in effect a return of capital, are
subject to federal income taxes.
The Fund is required by federal law to withhold 31% of reportable payments
(which may include dividends, capital gains, distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, you must certify on a W-9 tax form supplied
by the Fund that your Social Security or Taxpayer Identification Number provided
is correct and that you are not currently subject to back-up withholding, or
that you are exempt from back-up withholding.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
P(1+T)n = ERV
where P equals a hypothetical initial payment of $1,000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
CUMULATIVE TOTAL RETURN
Cumulative total return represents the simple change in value of an investment
over a stated period and may be quoted as a percentage or as a dollar amount.
Total returns may be broken down into their components of income and capital
(including capital gains and changes in share price) in order to illustrate the
relationship between these factors and their contributions to total return.
YIELD
Annualized yield quotations used in a Fund's advertising and promotional
materials are calculated by dividing the Fund's interest income for a specified
thirty-day period, net of expenses, by the average number of shares outstanding
during the period, and expressing the result as an annualized percentage
(assuming semi-annual compounding) of the net asset value per share at the end
of the period. Yield quotations are calculated according to the following
formula:
YIELD = 2[(a-b + 1)6 - 1]
----
c-d
<PAGE>
where "a" equals dividends and interest earned during the period; "b" equals
expenses accrued for the period, net of reimbursements; "c" equals the average
daily number of shares outstanding during the period that are entitled to
receive dividends; and "d" equals the maximum offering price per share on the
last day of the period.
For purposes of these calculations, the maturity of an obligation with one or
more call provisions is assumed to be the next date on which the obligation
reasonably can be expected to be called or, if none, the maturity date.
OTHER INFORMATION
The Fund's performance data quoted in advertising and other promotional
materials represents past performance and is not intended to predict or indicate
future results. The return and principal value of an investment in a Fund will
fluctuate, and an investor's redemption proceeds may be more or less than the
original investment amount.
If permitted by applicable law, the Fund may advertise the performance of
registered investment companies or private accounts that have investment
objectives, policies and strategies substantially similar to those of the Fund.
COMPARISON OF FUND PERFORMANCE
The performance of a Fund may be compared to data prepared by Lipper Analytical
Services, Inc., CDA Investment Technologies, Inc., Morningstar, Inc., the
Donoghue Organization, Inc. or other independent services which monitor the
performance of investment companies, and may be quoted in advertising in terms
of its ranking in each applicable universe. In addition, the Fund may use
performance data reported in financial and industry publications, including
Barron's, Business Week, Forbes, Fortune, Investor's Daily, IBC/Donoghue's Money
Fund Report, Money Magazine, The Wall Street Journal and USA Today.
The Fund may from time to time use the following unmanaged indices for
performance comparison purposes:
o S&P 500 - The S&P 500 is a Fund of 500 stocks designed to mimic
the overall equity market's industry weightings. Most, but not
all, large capitalization stocks are in the index. There are also
some small capitalization names in the index. The list is
maintained by Standard & Poor's Corporation. It is market
capitalization weighted. There are always 500 issuers in the S&P
500. Changes are made by Standard & Poor's as needed.
o Russell 2000 - The Russell 2000 is composed of the 2,000 smallest
stocks in the Russell 3000, a market value weighted index of the
3,000 largest U.S. publicly-traded companies.
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
McCurdy and Associates, CPA's, Inc., 27995 Clemens Road, Westlake, Ohio 44145,
serves as the Fund's independent auditors, whose services include examination of
the Fund's financial statements and the performance of other related audit and
tax services.
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 24, 1999
The Medical Fund
----------------
ASSETS:
Cash in Bank $100,000
--------
Total Assets $100,000
--------
LIABILITIES: $ 0
-------------
Total Liabilities $ 0
-------------
NET ASSETS $100,000
--------
NET ASSETS CONSIST OF:
Capital Paid In $100,000
--------
OUTSTANDING SHARES
10,000,000 Shares
Authorized With $0.01 Par Value 10,000
NET ASSET VALUE PER SHARE $10.00
OFFERING PRICE PER SHARE $10.00
See accompanying notes and accountant's audit report
<PAGE>
KINETICS MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS
August 24, 1999
1. ORGANIZATION
The Medical Fund (the "Fund") is the first series of Kinetics Mutual
Mutual Funds, Inc., a Maryland corporation incorporated on March 26,
1999. The Fund is a non-diversified, open-end management investment
company.
The Fund uses an independent custodian and transfer agent. No
transactions other than those relating to organizational matters and the
sale of 10,000 shares of the Medical Fund have taken place to date.
The Fund's primary investment objective is long-term capital growth.
2. CONTROL PERSONS
As of August 24, 1999, all of the outstanding shares of the Fund were
owned by Kinetics Asset Management, Inc. a New York corporation that
serves as the investment adviser to the Fund. A shareholder who
beneficially owns, directly or indirectly, more than 25% of the Fund's
voting securities may be deemed a "control person" (as defined in the
1940 Act) of the Fund.
3. RELATED PARTY TRANSACTIONS
The Fund has a management and advisory agreement with Kinetics Asset
Management, Inc. which is a registered investment advisor under the
Investment Advisers Act of 1940. Under the agreement, Kinetics Asset
Management, Inc. furnishes investment advice to the Fund by continuously
reviewing the portfolio and recommending to the Fund when, and to what
extent, securities should be purchased or disposed. Pursuant to the
agreement, the Investment Advisor:
1. renders research, statistical and advisory services to the Fund;
2. makes specific recommendations based on the Fund's investment
requirements;
3. pays the salaries of those of the Fund's employees who may be
officers or directors or employees of the Investment Advisor.
For these services, the Fund has agreed to pay to Kinetics Asset
management, Inc. an annual fee of 1.25% of the Fund's average daily net
assets. All fees are computed on the average daily closing net asset
value of the Fund and are payable monthly.
Kinetics Asset Management, Inc. ("Kinetics") serves as Administrator of
the Fund. Under an Administrative Services Agreement with the Fund,
Kinetics will be entitled to receive an annual administration fee equal
to 0.15% of the Fund's average daily net assets, of which the Adviser
will be responsible for the payment of a portion of such fees to Firstar
Mutual Fund Services, LLC ("Firstar") for certain sub-administrative
services rendered to the Fund by Firstar.
Firstar also serves as the Fund's accountant and transfer agent. As such,
Firstar provides certain shareholder services and record management
services as well as acts as the Fund's dividend paying agent.
<PAGE>
KINETICS MUTUAL FUNDS, INC.
NOTES TO FINANCIAL STATEMENTS (CONT'D)
August 24, 1999
3. RELATED PARTY TRANSACTIONS (Cont'd)
Kinetics is also responsible for paying various shareholder servicing
agents for performing shareholder servicing functions and maintaining
shareholder accounts. These agents have written shareholder servicing
agreements with Kinetics and perform these functions on behalf of their
clients who own shares of the Fund. For this service, Kinetics receives
an annual shareholder fee from the Fund of 0.25% of the Fund's average
daily net assets.
Fees of the custodian, administrator, fund accountant, and transfer agent
are paid by the Fund. The Fund pays all other expenses, including:
o fees and expenses of directors not affiliated with the Advisor;
o legal and accounting fees;
o interest, taxes, and brokerage commissions; and
o record keeping and the expense of operating its offices.
Certain officers and/or directors of Kinetics Asset Management, Inc.
are also officers and/or directors of the Fund.
4. CAPITAL STOCK AND DISTRIBUTION
At August 24, 1999, the authorized capitalization of the Fund consists
of 10,000,000 shares of common stock of $0.01 par value per share. Each
share has equal dividend, distribution and liquidation rights. There are
no conversion or preemptive rights applicable to any shares of the Fund.
All shares issued are fully paid and non-assessable. Each holder of
common stock has one vote for each share held. Voting rights are
non-cumulative. Transactions in capital stock were as follows:
Shares Sold:
The Medical Fund 10,000
Shares Redeemed:
The Medical Fund 0
--------
Net Increase:
The Medical Fund 10,000
--------
Shares Outstanding:
The Medical Fund 10,000
--------
<PAGE>
To the Shareholders and Board of Directors
Kinetics Mutual Funds, Inc.:
We have audited the accompanying statement of assets and liabilities of Kinetics
Mutual Funds, Inc. (comprising, respectively, The Medical Fund) as of August 24,
1999. This financial statement is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. Our procedures included
confirmation of cash held by the custodian as of August 24, 1999, by
correspondence with the custodian. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of The Medical
Fund constituting Kinetics Mutual Funds, Inc. as of August 24, 1999, in
conformity with generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
August 24, 1999
<PAGE>
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S ("S&P") CORPORATE BOND RATING DEFINITIONS
AAA-Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC-Debt rated "BB", "B", "CCC", and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
CI-The rating "CI" is reversed for income bonds on which no interest is being
paid.
D-Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
Aaa-Bonds which are rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the near future.
Baa-Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba-Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
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B-Bonds which are rated "B" generally lack characteristics of a desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa-Bonds which are rated "Caa" are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca-Bonds which are "Ca" represent obligations which are speculative in a high
degree. Such issues are often in default or have other marked shortcomings.
C-Bonds which are rated "C" are the lowest rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
FITCH INVESTORS SERVICE, INC. BOND RATING DEFINITIONS
AAA-Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA-Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A-Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered strong, but
may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB-Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB-Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B-Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC-Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC-Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C-Bonds are in imminent default in payment of interest or principal.
DDD, DD, and D-Bonds are in default on interest and/or principal payments. Such
bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. "DDD"
represents the highest potential for recovery on these bonds, and "D" represents
the lowest potential for recovery.
