<PAGE> 1
KINETICS MUTUAL
FUNDS, INC.
[KINETICS MUTUAL FUNDS, INC. LOGO]
THE INTERNET FUND
THE MEDICAL FUND
ANNUAL REPORT
DECEMBER 31, 1999
www.kineticsfunds.com
<PAGE> 2
Dear Fellow Shareholders:
We are pleased to present our annual report highlighting the financial
performance of The Internet Fund and The Medical Fund. In addition, we are proud
to inform you that The Internet Fund was awarded a five-star overall rating by
Morningstar and that it was named the number one performing mutual fund by
Lipper, Inc. among all equity funds for the three-year period ending December
31, 1999. The Medical Fund, which was introduced on September 30, 1999,
performed well during its brief history, providing a total return of 33.50% from
inception through December 31, 1999. We will strive to continue to provide
Kinetics Funds shareholders, who now number over 100,000, with superior
investment returns.
During 1999, investors continued to recognize the vast and seemingly endless
potential of the Internet, as reflected by The Internet Fund's return of 216.50%
for the year. Looking forward, we believe we have identified some very promising
investment opportunities, most notably in the field of wireless communications.
In our opinion, mobile devices will ultimately become the leading method by
which individuals and corporations access the Internet, retrieve time-sensitive
data, and conduct e-commerce. We believe the opportunities in this segment of
the Internet industry are reminiscent of those available during the earliest
days of Internet investing. Consequently, capital inflow into the companies that
participate in this field should result in substantially higher valuations.
However, as is the case with any investment sector, there will undoubtedly be
periods of volatile share prices. Our defenses against such volatility include
the purchase of financially sound companies and maintaining a long-term
perspective.
The excellent performance of The Medical Fund reflects the incredible advances
that are being made on a daily basis in the understanding of cellular immunology
and human genetic structure. The manner in which human illness will be treated
and cured will change enormously over the next five to ten years. More
treatments will come to the market than ever before and we believe these will be
far more effective than anything ever achieved by the medical community. The
availability of good health for the world's population is arguably one of the
greatest profit opportunities ever presented to the investment community.
Through its ownership positions in leading companies, The Medical Fund should
continue to prosper.
Finally, to enhance communications with our shareholders and with prospective
investors, we are pleased to announce the introduction of our new website
www.kineticsfunds.com. It provides a broad array of information, including
portfolio holdings, investment commentary, newsflashes, performance data and
on-line access to account information.
We thank you for your confidence and look forward to continuing to provide you
with products and services that will assist you in achieving your investment
goals.
Steven R. Samson Peter B. Doyle
President Chief Investment Strategist
Kinetics Mutual Funds, Inc. Kinetics Asset Management, Inc.
Disclosure
- ----------
The Kinetics family of seven 100% no load mutual funds, includes: The Internet
Fund (Morningstar overall rated 5 stars among 3,469 domestic equity funds for
the 3 year period ending 12/31/99 and Lipper ranked #1 out of all 5,843 equity
mutual funds for the same period), The Internet Infrastructure Fund, The
Internet Emerging Growth Fund, The Internet Global Growth Fund, The Internet New
Paradigm Fund, The Medical Fund and The Kinetics Government Money Market Fund.
1
<PAGE> 3
<TABLE>
<CAPTION>
Internet Russel S&P 500
<S> <C> <C> <C>
October-96 $10,000.00 $10,000.00 $10,000.00
December-96 $9,420.00 $10,520.00 $10,480.00
March-97 $7,420.00 $9,976.00 $10,761.00
June-97 $8,780.00 $11,593.00 $12,640.00
September-97 $11,020.00 $13,318.00 $13,586.00
December-97 $10,620.00 $12,872.00 $13,976.00
March-98 $13,700.00 $14,167.00 $15,926.00
June-98 $19,000.00 $13,507.00 $16,452.00
September-98 $17,140.00 $10,785.00 $14,815.00
December-98 $31,450.53 $12,544.00 $17,970.00
March-99 $60,720.34 $11,864.00 $18,865.00
June-99 $67,002.44 $13,709.00 $20,195.00
September-99 $59,259.85 $12,843.00 $18,935.00
December-99 $99,541.54 $15,211.00 $21,752.00
</TABLE>
<TABLE>
<CAPTION>
As of The Internet S&P 500 Index Russell
12/31/99 Fund 2000 Index
================================================================================
<S> <C> <C> <C>
One Year 216.50% 21.05% 21.26% .
- -------------------------------------------------------------------------------
Three Years 119.44% 27.56% 13.08% .
- --------------------------------------------------------------------------------
Since Inception
10/21/96 105.18% 27.52% 14.02% .
- -------------------------------------------------------------------------------
</TABLE>
How a $10,000 Investment Has Grown:
The chart above shows the growth of a $10,000 investment in the Fund as compared
to the performance of two representative market indices. The table below the
chart shows the average annual total returns on an investment over the period.
The annual returns assume the reinvestment of all dividends and distributions.
Past performance is not predicative of future performance. Investment return and
principal value will fluctuate, so that your shares, when redeemed, may be worth
more or less than their original cost.
================================================================================
S&P 500 Index- The S&P 500 is a capital-weighted index, representing the
aggregate market value of the common equity of 500 stocks primarily traded on
the New York Stock Exchange. The S&P 500 is unmanaged and includes the
reinvestment of all dividends, but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities that comprise the S&P 500 may differ substantially from the
securities in the Fund's portfolio. It is not possible to directly invest in an
index.
Russell 2000 Index- 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. The Russell 2000 does not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities that comprise the Russell 2000 may differ substantially from the
securities in the Fund's portfolio. It is not possible to directly invest in an
index.
The Fund participates in the Initial Public Offering ("IPO") market, and a
portion of the Fund's returns are attributable to its investments in IPOs, which
have a magnified impact due to the Fund's relatively small asset base. There is
no guarantee that as the Fund's assets grow, it will continue to experience
substantially similar performance by investing in IPOs.
2
<PAGE> 4
<TABLE>
<CAPTION>
Medical Russel S&P 500
<S> <C> <C> <C>
September-99 $10,000.00 $10,002.00 $10,000.00
October-99 $10,490.00 $10,041.00 $10,633.00
November-99 $11,390.00 $10,640.00 $10,849.00
December-99 $13,350.00 $11,845.00 $11,488.00
</TABLE>
<TABLE>
<CAPTION>
As of The Medical S&P 500 Index Russell
12/31/99 Fund 2000 Index
================================================================================
<S> <C> <C> <C>
Since Inception
09/30/99 33.50% 14.88% 18.44% .
- --------------------------------------------------------------------------------
</TABLE>
How a $10,000 Investment Has Grown:
The chart above shows the growth of a $10,000 investment in the Fund as compared
to the performance of two representative market indices. The table below the
chart shows the average annual total returns on an investment over the period.
The annual returns assume the reinvestment of all dividends and distributions
and reflect fee waivers in effect. In the absence of fee waivers, total return
would be reduced. Past performance is not predicative of future performance.
Investment return and principal value will fluctuate, so that your shares, when
redeemed, may be worth more or less than their original cost.
================================================================================
S&P 500 Index- The S&P 500 is a capital-weighted index, representing the
aggregate market value of the common equity of 500 stocks primarily traded on
the New York Stock Exchange. The S&P 500 is unmanaged and includes the
reinvestment of all dividends, but does not reflect the payment of transaction
costs and advisory fees associated with an investment in the Fund. The
securities that comprise the S&P 500 may differ substantially from the
securities in the Fund's portfolio. It is not possible to directly invest in an
index.
Russell 2000 Index- 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. The Russell 2000 does not reflect the payment of
transaction costs and advisory fees associated with an investment in the Fund.
The securities that comprise the Russell 2000 may differ substantially from the
securities in the Fund's portfolio. It is not possible to directly invest in an
index.
The Fund participates in the Initial Public Offering ("IPO") market, and a
portion of the Fund's returns are attributable to its investments in IPOs, which
have a magnified impact due to the Fund's relatively small asset base. There is
no guarantee that as the Fund's assets grow, it will continue to experience
substantially similar performance by investing in IPOs.
3
<PAGE> 5
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE INTERNET FUND
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 92.7%** SHARES VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCESS/BROADBAND - 7.9%**
Advanced Radio Telecom Corporation* 25,000 $600,000
America Online, Inc.* 20,000 1,508,750
Broadwing, Inc.* 214,597 7,913,257
Next Level Communications, Inc.* 4,500 336,938
PSINet, Inc.* 220,900 13,640,575
StarMedia Network, Inc.* 256,000 10,256,000
Teligent, Inc. - Class A* 20,000 1,235,000
UnitedGlobalCom, Inc. - Class A* 795,000 56,146,875
------------
91,637,395
- -------------------------------------------------------------------------------------------------------------------------------
E-COMMERCE - 6.5%**
Catalina Marketing Corporation* 70,000 8,102,500
eBAY, Inc.* 7,000 876,312
Expedia, Inc. - Class A* 400 14,000
Harte-Hanks, Inc. 123,000 2,675,250
SciQuest.com, Inc.* 4,750 377,625
TMP Worldwide, Inc.* 275,000 39,050,000
Valassis Communications, Inc.* 90,000 3,802,500
24/7 Media, Inc.* 360,000 20,250,000
------------
75,148,187
- -------------------------------------------------------------------------------------------------------------------------------
INFRASTRUCTURE - 25.8%**
Charter Communications, Inc. - Class A* 40,000 875,000
Commonwealth Telephone Enterprises, Inc.* 465,800 24,629,175
Commonwealth Telephone Enterprises, Inc. - Class B* 3,100 177,475
CoreComm Limited* 270,000 16,031,250
Exodus Communications, Inc.* 600,000 53,287,500
Global Crossing Limited* 498,150 24,907,500
Globix Corporation* 60,000 3,600,000
Leap Wireless International, Inc.* 30,000 2,355,000
Level 3 Communications, Inc.* 30,300 2,480,813
Lynch Interactive Corporation* 5,500 549,313
Millicom International Cellular S.A.* 66,000 4,116,750
NetCom AB ADR* 42,000 3,013,500
NTL Incorporated* 380,000 47,405,000
Pacific Gateway Exchange, Inc.* 240,000 4,095,000
Pac-West Telecomm, Inc.* 14,450 382,925
Qwest Communications International, Inc.* 252,500 10,857,500
RCN Corporation* 1,050,000 50,925,000
Rostelecom ADR* 340,000 5,737,500
Telephone and Data Systems, Inc. 259,000 32,634,000
Vimpel-Communications ADR* 273,000 12,182,625
------------
300,242,826
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
4
<PAGE> 6
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE INTERNET FUND
- -------------------------------------------------------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNET TECHNOLOGY/SOFTWARE - 15.4%**
Banyan Systems Incorporated* 890,000 $17,800,000
BARRA, Inc.* 192,100 6,099,175
Broadcom Corporation* 140,000 38,132,500
Citrix Systems, Inc.* 33,000 4,059,000
Cognizant Technology Solutions Corporation* 200,900 21,960,881
Gemstar International Group Limited* 400,000 28,500,000
Harris Interactive, Inc.* 4,000 52,250
IMS Health Incorporated 45,000 1,223,437
Inktomi Corporation* 364,000 32,305,000
Intuit, Inc.* 265,000 15,883,437
Macromedia, Inc.* 50,000 3,656,250
Media Metrix, Inc.* 7,000 250,250
Mediaplex, Inc.* 10,000 627,500
National Information Consortium, Inc.* 15,000 480,000
NetRatings, Inc.* 12,000 577,500
RealNetworks, Inc.* 60,000 7,218,750
Red Hat, Inc.* 1,000 211,250
Xpedior Incorporated* 1,500 43,125
------------
179,080,305
- -------------------------------------------------------------------------------------------------------------------------------
MEDIA CONTENT - 14.8%**
About.com, Inc.* 200,000 17,950,000
AdForce, Inc.* 57,100 4,075,512
AT&T Corp. - Liberty Media Group - Class A * 1,140,000 64,695,000
AT&T Corp. - Liberty Media Group - Class B * 2,000 137,500
Bell & Howell Company* 17,000 540,812
CNET, Inc.* 45,000 2,553,750
DoubleClick, Inc.* 100,000 25,306,250
Getty Images, Inc.* 85,000 4,154,375
GoTo.com, Inc.* 49,000 2,878,750
MarketWatch.com, Inc.* 280,000 10,220,000
Meredith Corporation 10,000 416,875
NBC Internet, Inc. - Class A* 415,700 32,112,825
Penton Media, Inc. 255,000 6,120,000
PRIMEDIA, Inc.* 75,000 1,237,500
------------
172,399,149
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
5
<PAGE> 7
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE INTERNET FUND
- -------------------------------------------------------------------------------------------------------------------------------
Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PORTALS - 5.3%**
Lycos, Inc.* 286,800 $22,818,525
Yahoo!, Inc.* 90,059 38,967,404
------------
61,785,929
- -------------------------------------------------------------------------------------------------------------------------------
VENTURE CAPITAL - 17.0%**
CMGI, Inc.* 240,000 66,450,000
Comdisco, Inc. 925,000 34,456,250
Eshed Robotec Limited* 81,100 108,978
Knight/Trimark Group, Inc. - Class A* 75,000 3,450,000
London Pacific Group Limited ADR 70,900 2,552,400
Pacific Century CyberWorks Limited* 6,000,000 14,700,000
Safeguard Scientifics, Inc.* 411,000 66,607,688
SOFTBANK CORP.* 10,000 9,554,980
------------
197,880,296
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (COST $601,250,728) 1,078,174,087
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
SHORT-TERM INVESTMENTS - 7.6%** AMOUNT
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT COMPANIES - 2.5%**
Firstar Institutional Money Market Fund (cost $28,616,568) $28,616,568 $28,616,568
- -------------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS - 5.1%**
U.S. Treasury Bill
4.590%, 2/03/2000 30,000,000 29,873,775
5.055%, 2/24/2000 30,000,000 29,772,525
------------
Total U.S. Treasury obligations (cost $59,646,300) 59,646,300
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT TERM INVESTMENTS (COST $88,262,868) 88,262,868
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 100.3%** (COST $689,513,596) $1,166,436,955
==============
</TABLE>
* Non-income producing security.
** Calculated as a percentage of net assets.
ADR -- American Depository Receipts
See Notes to the Financial Statements.
6
<PAGE> 8
================================================================================
Kinetics Mutual Funds, Inc.
Schedule of Options Written - December 31, 1999
THE INTERNET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WRITTEN OPTION CONTRACTS CONTRACTS VALUE
- -----------------------------------------------------------------------------------------
<S> <C> <C>
PSINet, Inc. - Call
Expiring January 2000 at 45 500 $ 843,750
---------
TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $448,485) $ 843,750
=========
</TABLE>
7
<PAGE> 9
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE MEDICAL FUND
- --------------------------------------------------------------------------------------------------------------------------
COMMON STOCKS - 95.0% SHARES VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BIOMEDICAL - 56.0%
Amgen, Inc.* 5,000 $300,312
Biogen, Inc.* 3,400 287,300
Biomira, Inc.* 20,000 78,750
Bio-Technology General Corporation* 9,500 144,875
Cell Genesys, Inc.* 1,225 15,695
Cell Pathways, Inc.* 4,000 37,000
Chiron Corporation* 5,000 211,875
Coulter Pharmaceutical, Inc.* 2,000 45,375
EntreMed, Inc.* 4,000 102,500
Genentech, Inc.* 2,240 301,280
Genzyme Corporation* 4,500 202,500
Human Genome Sciences, Inc.* 1,800 274,725
IDEC Pharmaceuticals Corporation* 6,200 609,150
ILEX Oncology, Inc.* 4,500 108,562
ImClone Systems Incorporated* 825 32,691
Immunex Corporation* 2,800 306,600
Medarex, Inc.* 4,000 149,000
Millennium Pharmaceuticals, Inc.* 1,574 192,028
NeoRx Corporation* 6,000 24,375
Onyx Pharmaceuticals, Inc.* 4,500 45,000
Progenics Pharmaceuticals, Inc.* 1,200 58,650
Ribozyme Pharmaceuticals, Inc.* 2,500 26,250
SuperGen, Inc.* 2,000 58,750
Targeted Genetics Corporation* 6,000 23,625
The Liposome Company, Inc.* 13,000 158,640
Tularik, Inc.* 1,000 32,375
Vical Incorporated* 2,000 59,875
--------------------
3,887,758
- --------------------------------------------------------------------------------------------------------------------------
MEDICAL LABS/TESTING SERVICES - 4.0%
IMPATH, Inc.* 11,000 279,813
--------------------
</TABLE>
See Notes to the Financial Statements.
8
<PAGE> 10
<TABLE>
- -------------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE MEDICAL FUND Shares Value
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PHARMACEUTICALS - 34.4%
Abbott Laboratories 2,800 $101,675
ALZA Corporation* 2,500 86,562
American Home Products Corporation 3,000 118,313
AstraZeneca Group PLC ADR 2,500 104,375
BioChem Pharma, Inc.* 7,000 152,250
Bristol-Myers Squibb Company 4,500 288,844
Eli Lilly and Company 2,500 166,250
Glaxo Wellcome PLC ADR 2,500 139,687
Johnson & Johnson 2,000 186,250
MedImmune, Inc.* 1,300 215,638
Merck & Co., Inc. 2,500 167,656
MGI Pharma, Inc.* 10,000 119,375
Pfizer, Inc. 3,000 97,313
Pharmacia & Upjohn, Inc. 2,100 94,500
Roche Holding AG ADR 1,500 177,107
Schering-Plough Corporation 1,800 75,938
SmithKline Beecham PLC ADR 1,500 96,656
--------------------
2,388,389
- --------------------------------------------------------------------------------------------------------------------------
THERAPEUTICS - 0.6%
Theragenics Corporation* 4,500 40,781
--------------------
TOTAL COMMON STOCK (COST $5,519,547) 6,596,741
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to the Financial Statements.
9
<PAGE> 11
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------
KINETICS MUTUAL FUNDS, INC.
Schedule of Investments - December 31, 1999
THE MEDICAL FUND
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PRINCIPAL
VARIABLE RATE DEMAND NOTES** - 14.1% AMOUNT VALUE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Firstar Bank, NA, 6.2400% $337,428 $337,428
General Mills, Inc., 6.0950% 310,000 310,000
Wisconsin Corporate Central Credit Union, 6.1600% 269,785 269,785
Wisconsin Electric Power Company, 6.0432% 60,886 60,887
--------------------
TOTAL VARIABLE RATE DEMAND NOTES (COST $978,100) 978,100
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS - 109.1% (COST $6,497,647) 7,574,841
OTHER LIABILITIES IN EXCESS OF ASSETS - (9.1%) (631,283)
--------------------
TOTAL NET ASSETS - 100.0% $6,943,558
====================
</TABLE>
* Non-income producing security.
** Variable rate demand notes are considered short-term obligations
and are payable on demand. Interest rates change periodically on
specified dates. The rates listed are as of December 31, 1999.
ADR --American Depository Receipts.
See Notes to the Financial Statements.
10
<PAGE> 12
Kinetics Mutual Funds, Inc.
Statement of Assets and Liabilities
December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE INTERNET THE MEDICAL
FUND FUND
--------------- -----------
<S> <C> <C>
Assets:
Investments, at value* $ 1,166,436,955 $7,574,841
Cash -- 14,525
Receivable from Adviser -- 15,463
Receivable for Fund shares sold 16,192,867 128,690
Interest receivable 202,942 1,837
Dividends receivable 10,800 517
Prepaid expenses 31,265 16
--------------- ----------
Total assets 1,182,874,829 7,735,889
--------------- ----------
LIABILITIES:
Payable to Adviser 1,019,934 5,130
Payable for Service Fee 203,987 1,026
Written options, at value (Premiums received of $448,485 and $0, respectively) 843,750 --
Payable for investments purchased 14,109,036 717,779
Payable for Fund shares repurchased 2,860,733 60,018
Dividends payable 46 --
Accrued expenses and other liabilities 740,587 8,378
--------------- ----------
Total liabilities 19,778,073 792,331
--------------- ----------
Total Net Assets $ 1,163,096,756 $6,943,558
=============== ==========
NET ASSETS CONSIST OF:
Paid in capital $ 731,928,666 $5,859,552
Undistributed net realized gain (loss) on investments (45,360,004) 6,812
Net unrealized appreciation (depreciation) on:
Investments 476,923,359 1,077,194
Written options (395,265) --
--------------- ----------
Total Net Assets $ 1,163,096,756 $6,943,558
=============== ==========
Shares outstanding
(1,000,000,000 shares authorized, $ 0.001 par value) 23,388,813 519,980
Net Asset Value, Redemption Price and Offering Price Per Share $ 49.73 $ 13.35
=============== ==========
* Cost of Investments $ 689,513,596 $6,497,647
=============== ==========
</TABLE>
See Notes to the Financial Statements.
11
<PAGE> 13
Kinetics Mutual Funds, Inc.
Statement of Operations
Period Ended December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE INTERNET THE MEDICAL
FUND FUND
------------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Dividends $ 97,890 $ 1,206
Interest 3,734,110 3,737
Other 1,409 --
------------- -----------
Total investment income 3,833,409 4,943
------------- -----------
EXPENSES:
Investment advisory fee 6,753,133 8,280
Service fee 766,954 1,656
Transfer agent fees and expenses 1,334,813 14,752
Legal fees 355,489 1,662
Administration fee 616,704 994
Registration fees 201,438 1,494
Audit fees 66,462 416
Custodian fees and expenses 87,449 5,251
Fund accounting fees 57,275 4,728
Reports to shareholders 519,875 276
Insurance expense 26,519 92
Directors' fees and expenses 41,007 62
------------- -----------
Total expenses 10,827,118 39,663
Less, expense reimbursement -- (26,415)
------------- -----------
Net expenses 10,827,118 13,248
------------- -----------
Net investment loss (6,993,709) (8,305)
------------- -----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
Net realized gain (loss) on investments (45,349,047) 6,812
Net change in unrealized appreciation (depreciation) on:
Investments 472,165,135 1,077,194
Written Options (395,265) --
------------- -----------
Net realized and unrealized gain on investments 426,420,823 1,084,006
------------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: $ 419,427,114 $ 1,075,701
============= ===========
</TABLE>
See Notes to the Financial Statements.
12
<PAGE> 14
Kinetics Mutual Funds, Inc.
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THE INTERNET FUND THE MEDICAL FUND
------------------------------------ -----------------
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1999
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operations:
Net investment loss ($ 6,993,709) ($ 90,058) ($ 8,305)
Net realized gain (loss) on investments (45,349,047) 632,132 6,812
Net change in unrealized appreciation of investments and options 471,769,870 4,751,175 1,077,194
--------------- ------------ -----------
Net increase in net assets resulting from operations 419,427,114 5,293,249 1,075,701
--------------- ------------ -----------
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS:
Net realized gain on investments (543,455) (8,316) --
--------------- ------------ -----------
Total dividends and distributions (543,455) (8,316) --
--------------- ------------ -----------
CAPITAL SHARE TRANSACTIONS:
Net proceeds from shares sold 1,458,349,629 22,532,887 6,388,440
Reinvestment of distributions 506,413 7,974 --
Cost of shares redeemed (736,801,628) (5,816,862) (620,583)
--------------- ------------ -----------
Net increase in net assets from capital share transactions 722,054,414 16,723,999 5,767,857
--------------- ------------ -----------
Total increase in net assets 1,140,938,073 22,008,932 6,843,558
NET ASSETS:
Beginning of period 22,158,683 149,751 100,000
--------------- ------------ -----------
End of period * $ 1,163,096,756 $ 22,158,683 $ 6,943,558
=============== ============ ===========
* Including undistributed net investment loss of: ($ 6,993,709) ($ 90,069) ($ 8,305)
=============== ============ ===========
CHANGES IN SHARES OUTSTANDING:
Shares sold 45,293,582 1,814,360 562,970
Reinvestment of distributions 9,786 525 --
Shares redeemed (23,324,386) (433,255) (52,990)
--------------- ------------ -----------
Net increase in shares outstanding 21,978,982 1,381,630 509,980
=============== ============ ===========
</TABLE>
See Notes to the Financial Statements.
13
<PAGE> 15
================================================================================
KINETICS MUTUAL FUNDS, INC.
Notes to the Financial Statements
December 31, 1999
================================================================================
NOTE 1.
ORGANIZATION: Kinetics Mutual Funds, Inc. (the "Company") is registered under
the Investment Company Act of 1940, as amended (the "1940 Act") and was
incorporated in the state of Maryland on March 26, 1999. The Company is an
open-end management investment company issuing its shares in series, each series
representing a distinct portfolio with its own investment objective and
policies. The series presently authorized are The Internet Fund, The Medical
Fund, The Internet Emerging Growth Fund, The Internet Infrastructure Fund, The
Internet New Paradigm Fund, and The Internet Global Growth Fund (each a "Fund"
and collectively, the "Funds"). Each Fund is a "non-diversified" series of the
Company pursuant to the 1940 Act. The accompanying financial statements exclude
The Internet Emerging Growth Fund, The Internet Infrastructure Fund, The
Internet New Paradigm Fund and The Internet Global Growth Fund; financial
statements for these Funds are reported on separately. Investment operations of
the Funds began on October 21, 1996 (The Internet Fund), September 30, 1999 (The
Medical Fund) and December 31, 1999 (The Internet Emerging Growth Fund, The
Internet Infrastructure Fund, The Internet New Paradigm Fund and The Internet
Global Growth Fund).
The Internet Fund seeks to provide investors with long-term capital growth by
investing primarily in the equity securities of domestic and foreign companies
engaged in the Internet and Internet-related activities. The Medical Fund 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,
pharmaceutical treatments and related medical technology with an emphasis
towards companies engaged in cancer research and drug development. The following
is a summary of significant accounting policies followed by the Funds in the
preparation of the financial statements.
NOTE 2.
SECURITY VALUATION: Portfolio securities that are listed on a U.S. securities
exchange (whether domestic or foreign) or The Nasdaq Stock Market ("NSM") for
which market quotations are readily available are valued at the last quoted sale
price as of 4:00 p.m., Eastern time on the day the valuation is made. Options,
futures, unlisted U.S. securities and listed U.S. securities not traded on the
valuation date for which market quotations are readily available are valued at
the most recent quoted bid price. Fixed-income securities (other than
obligations having a maturity of 60 days or less) are normally valued on the
basis of quotes obtained from pricing services, which take into account
appropriate factors such as institutional sized trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. Fixed-income securities purchased with
remaining maturities of 60 days or less are valued at
14
<PAGE> 16
amortized cost if it reflects fair value. Other assets and securities for which
no quotations are readily available (including restricted securities) will be
valued in good faith at fair value using methods determined by the Board of
Directors of the Funds.
REPURCHASE AGREEMENTS: Each Fund may enter into repurchase agreements with banks
that are members of the Federal Reserve System or securities dealers who are
members of a national securities exchange or are primary dealers in U.S.
Government Securities. In connection with transactions in repurchase agreements,
it is the Company's policy that the Fund receive, as collateral, securities
whose market value, including accrued interest, at all times will be at least
equal to 100% of the amount invested by the Fund in each repurchase agreement.
If the seller defaults, and the value of the collateral declines, realization of
the collateral by the Fund may be delayed or limited.
WRITTEN OPTION ACCOUNTING: The Funds may write (sell) call options for trading
purposes. When a Fund writes (sells) an option, an amount equal to the premium
received by the Fund is included in the Statement of Assets and Liabilities as
an asset and an equivalent liability. The amount of the liability is
subsequently marked-to-market to reflect the current value of the option
written. By writing an option, the Fund may become obligated during the term of
the option to deliver or purchase the securities underlying the option at the
exercise price if the option is exercised. Option contracts are valued at the
average of the current bid and asked price reported on the day of valuation.
When an option expires on its stipulated expiration date or the Fund enters into
a closing purchase transaction, the Fund realizes a gain or loss if the cost of
the closing transaction differs from the premium received when the option was
sold without regard to any unrealized gain or loss on the underlying security,
and the liability related to such option is eliminated. When an option is
exercised, the premium originally received decreases the cost basis of the
underlying security (or increases the proceeds on security sold short) and the
Fund realizes a gain or loss from the sale of the security (or closing of the
short sale). As collateral for uncovered written options, the Fund is required
under the 1940 Act to maintain assets consisting of cash, cash equivalents or
liquid securities. This collateral is required to be adjusted daily to reflect
the market value of the purchase obligation for put options or the market value
of the instrument underlying the contract, but not less than the strike price,
for call options.
FEDERAL INCOME TAXES: It is the Company's policy to meet the requirements of the
Internal Revenue Code applicable to regulated investment companies and the
Company intends to distribute investment company net taxable income and net
capital gains to shareholders. Therefore, no federal income tax provision is
required.
EXPENSE ALLOCATION: Common expenses incurred by the Funds are allocated among
the Funds based upon (i) relative average net assets, (ii) as incurred on a
specific identification basis, or (iii) evenly among the Funds, depending on the
nature of the expenditure.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions
15
<PAGE> 17
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment income and
distributions of net realized capital gains, if any, will be declared and paid
at least annually.
FINANCIAL STATEMENT PRESENTATION: Certain classifications from prior periods
have been restated to conform with the current period presentation.
OTHER: Security and shareholder transactions are recorded on trade date.
Realized gains and losses on sales of investments are calculated on the
identified cost basis. Dividend income and dividends and distributions to
shareholders are recorded on the ex-dividend date. Interest income is recognized
on the accrual basis. Generally accepted accounting principles require that
permanent financial reporting and tax differences relating to shareholder
distributions be reclassified to paid in capital.
NOTE 3.
INVESTMENT ADVISORY AGREEMENTS: The Funds have entered into an investment
advisory agreement with Kinetics Asset Management, Inc. (the "Adviser"), whereby
the Adviser receives an annual management fee of 1.25% of average daily net
assets. The Adviser has voluntarily agreed to pay all operating expenses in
excess of the annual rates presented below as applied to each Funds' daily net
assets. For the period ended December 31, 1999, the Adviser reimbursed the
following expenses:
<TABLE>
<CAPTION>
The Internet Fund The Medical Fund
<S> <C> <C>
Annual Advisory Rate 1.25% 1.25%
Annual Cap on Expenses 2.00% 2.00%
Expenses Reimbursed $ - $26,415
</TABLE>
The Adviser receives a shareholder servicing fee pursuant to a Shareholder
Servicing Agreement in the 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. During the period ended December 31, 1999,
The Internet Fund and The Medical Fund incurred expenses of $766,954 and $1,656,
respectively, pursuant to the Shareholder Servicing Agreement.
The Adviser also serves as Administrator to the Funds. Under an Administrative
Services Agreement with the Funds, the Adviser is entitled to receive an annual
administration fee equal to 0.15% of the Funds' average daily net assets, of
which the
16
<PAGE> 18
Adviser is 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. During the period ended December 31,
1999, The Internet Fund and The Medical Fund incurred expenses of $616,704 and
$994, respectively, pursuant to the Administrative Services Agreement.
NOTE 4.
SECURITIES TRANSACTIONS: Purchases and sales of investment securities, other
than short-term investments and options, for the period ended December 31, 1999
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------------------------- ---------------------------------
U.S. Government Other U.S. Government Other
--------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
The Internet Fund -- $1,053,318,803 -- $417,133,767
The Medical Fund -- $5,527,297 -- $14,562
</TABLE>
During the period ended December 31, 1999, The Internet Fund wrote the following
options:
<TABLE>
<CAPTION>
Number Premium
of Contracts Amount
------------ ---------
<S> <C> <C>
Outstanding at the Beginning of Period -- --
Options Written 500 $448,485
Options Terminated -- --
------- --------
Outstanding at the End of Period 500 $448,485
</TABLE>
As of December 31, 1999, unrealized appreciation (depreciation) for federal
income tax purposes was as follows:
<TABLE>
<CAPTION>
Appreciated Depreciated
Net Appreciation Securities Securities
---------------- ----------- -----------
<S> <C> <C> <C>
The Internet Fund $479,010,188 $491,608,270 ($12,598,082)
The Medical Fund $ 1,077,194 $ 1,299,057 ($ 221,863)
</TABLE>
At December 31, 1999, the cost of investments for federal income tax purposes
was $687,031,502 and $6,497,647 for The Internet Fund and The Medical Fund,
respectively. Any differences between book and tax are due primarily to wash
sale losses.
At December 31, 1999, The Internet Fund had accumulated net realized capital
loss carryovers of $45,360,004 expiring in 2007. To the extent that the Fund
realizes future net capital gains, those gains will be offset by any unused
capital loss carryover.
NOTE 5.
SPECIAL MEETING OF SHAREHOLDERS, MARCH 29, 1999: A Special Meeting of
Shareholders of The Internet Fund (the "Fund"), was held March 29, 1999, at 344
Van Buren Street, North Babylon, New York 11704. As of March 11, 1999, the
record date, outstanding
17
<PAGE> 19
shares of the Fund were 9,162,022.494. Holders of 5,886,831.000 shares of the
Fund were present at the meeting in person or by proxy, being the holders of a
majority of the outstanding shares of the Fund and thus constituting a quorum.
The shareholders of the Fund elected to increase the number of authorized shares
of Common Stock from 10,000,000 to 50,000,000 shares.
<TABLE>
<CAPTION>
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
5,873,302.000 13,529.000 0.000 3,275,191.494
</TABLE>
CHANGES IN INDEPENDENT ACCOUNTANT: Effective September 1, 1999, the Board of
Directors selected the accounting firm of McCurdy & Associates CPA's, Inc. to
serve as the Funds' independent certified public accountants for the fiscal year
ended December 31, 1999 to fill a vacancy in such position in accordance with
Section 32(a)(2) of the 1940 Act resulting from Lilling & Company LLP's
resignation on June 4, 1999. Lilling & Company LLP had served as the Funds'
independent certified public accountants for the Funds' fiscal years ended
December 31, 1997 and December 31, 1998. Lilling & Company LLP's report of the
financial statements of the Funds for the fiscal years ended December 31, 1997
and December 31, 1998 did not contain an adverse opinion or disclaimer of
opinion or was not qualified or modified as to uncertainty, audit scope or
accounting principles. There were no disagreements with Lilling & Company LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope of procedure during the fiscal years ended
December 31, 1997 and December 31, 1998 or for the interim period from January
1, 1999 through the date of their resignation.
The Funds represent that it had not consulted with McCurdy & Associates CPA's,
Inc. any time prior to their engagement with respect to the application of
accounting principles to a specified transaction, either completed or proposed;
or the type of audit opinion that might be rendered on the Funds' financial
statements.
SPECIAL MEETING OF SHAREHOLDERS, OCTOBER 20, 1999: A Special Meeting of
Shareholders of The Internet Fund (the "Fund"), was held October 20, 1999, at 17
State Street, New York, New York 10004. As of August 25, 1999, the record date,
outstanding shares of the Fund were 20,321,988. Holders of 16,234,882 shares of
the Fund were present at the meeting in person or by proxy, being the holders of
a majority of the outstanding shares of the Fund and thus constituting a quorum.
The shareholder voted on five proposals.
18
<PAGE> 20
The shareholders elected Directors to the Board of Directors and the
ratification of the selection of independent auditors, the adoption of a
master-feeder fund structure, a change to permit the Fund to be a
non-diversified investment company, and to recognize the Fund as a series of
Kinetics Mutual Funds, Inc., a Maryland corporation.
<TABLE>
<CAPTION>
WITHHOLD/ BROKER SHARES
FOR AGAINST ABSTAIN NOT VOTED
---------- ----------- ----------- -------------
ELECTION OF BOARD
OF DIRECTORS:
<S> <C> <C> <C> <C>
Joseph E. Breslin 15,326,409 -- 908,473 --
Kathleen Campbell 15,306,198 -- 928,684 --
Douglas Cohen 15,322,352 -- 912,530 --
William J. Graham 15,314,551 -- 920,331 --
Steven T. Russell 15,319,949 -- 914,933 --
Steven R. Samson 15,318,204 -- 916,678 --
Murray Stahl 15,317,044 -- 917,838 --
John J. Sullivan 15,311,804 -- 923,078 --
RATIFICATION OF THE
SELECTION OF MCCURDY &
ASSOCIATES CPA'S, INC. AS
INDEPENDENT AUDITORS: 15,041,035 328,605 865,242 --
PERMIT ADOPTION OF A
MASTER-FEEDER FUND
STRUCTURE: 13,285,717 929,294 1,090,634 929,237
PERMIT THE FUND TO BE
A NON-DIVERSIFIED
INVESTMENT COMPANY: 13,382,859 919,754 1,003,032 929,237
REORGANIZE THE FUND AS
A SERIES OF KINETICS
MUTUAL FUNDS, INC.: 13,628,721 792,179 884,745 929,237
</TABLE>
19
<PAGE> 21
Kinetics Mutual Funds, Inc.
THE INTERNET FUND
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR FOR THE YEAR
ENDED ENDED ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
PER SHARE DATA:(5)
Net Asset Value, Beginning of Period $ 15.72 $ 5.31 $ 4.71
------------- ------------- -------------
Income from Investment Operations:
Net investment income (loss) (0.30)(4) (0.08) 0.01
Net realized and unrealized gain (loss) on investments 34.33 10.50 0.59
------------- ------------- -------------
Total gain (loss) from investment operations 34.03 10.42 0.60
------------- ------------- -------------
Less Distributions:
From realized gains (0.02) (0.01) --
------------- ------------- -------------
Net Asset Value, End of Period $ 49.73 $ 15.72 $ 5.31
============= ============= =============
Total Return 216.50% 196.14% 12.74%
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000's) $ 1,163,097 $ 22,159 $ 150
Ratio of expenses to average net assets:
Before expense reimbursement 2.00% 3.08% 3.60%
After expense reimbursement 2.00% 3.08% 0.08%
Ratio of investment income to average net assets:
Before expense reimbursement (1.29%) (2.92%) (3.33%)
After expense reimbursement (1.29%) (2.92%) 0.19%
Portfolio turnover rate 89% 80% 50%
</TABLE>
<TABLE>
<CAPTION>
OCTOBER 21, 1996(1)
ENDED
DECEMBER 31, 1996
-----------------
<S> <C>
PER SHARE DATA:(5)
Net Asset Value, Beginning of Period $ 5.00
-------------
Income from Investment Operations:
Net investment income (loss) 0.02
Net realized and unrealized gain (loss) on investments (0.31)
-------------
Total gain (loss) from investment operations (0.29)
-------------
Less Distributions:
From realized gains --
-------------
Net Asset Value, End of Period $ 4.71
=============
Total Return (5.80%)(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000's) $ 113
Ratio of expenses to average net assets:
Before expense reimbursement 6.73%(3)
After expense reimbursement 0.21%(3)
Ratio of investment income to average net assets:
Before expense reimbursement (4.15%)(3)
After expense reimbursement 2.01% (3)
Portfolio turnover rate 0%
</TABLE>
(1) Commencement of Operations.
(2) Not annualized.
(3) Annualized.
(4) Net investment loss per share is calculated using ending balances prior
to consideration of adjustments for permanent financial reporting and
tax differences.
(5) Information presented relates to a share of capital stock outstanding
for the entire period.
See Notes to the Financial Statements.
20
<PAGE> 22
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
Kinetics Mutual Funds, Inc.
THE MEDICAL FUND
Financial Highlights
------------------------------------------------------------------------------------------------------------
SEPTEMBER 30, 1999 (1)
THROUGH
DECEMBER 31, 1999
----------------------
PER SHARE DATA: (5)
<S> <C>
Net Asset Value, Beginning of Period $10.00
----------------------
Income from Investment Operations:
Net investment income loss (0.02)(4)
Net realized and unrealized gain on 3.37
investments
----------------------
Total gain from investment operations 3.35
----------------------
Less Distributions:
From realized gains -
----------------------
Net Asset Value, End of Period $13.35
======================
Total Return 33.50%(2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period (000's) $6,944
Ratio of expenses to average net assets:
Before expense reimbursement 5.99%(3)
After expense reimbursement 2.00%(3)
Ratio of investment income to average net assets:
Before expense reimbursement (5.24%)(3)
After expense reimbursement (1.25%)(3)
Portfolio turnover rate 1%
</TABLE>
(1) Commencement of Operations.
(2) Not annualized.
(3) Annualized.
(4) Net investment loss per share is calculated using ending balances
prior to consideration of adjustments for permanent financial
reporting and tax differences.
(5) Information presented relates to a share of capital stock outstanding
for the entire period.
See Notes to the Financial Statements.
21
<PAGE> 23
INDEPENDENT AUDITOR'S REPORT
To The Shareholders and Board of Directors
Kinetics Mutual Funds, Inc.:
We have audited the statements of assets and liabilities, including the
portfolios of investments, of The Internet Fund and The Medical Fund (two of the
portfolios constituting Kinetics Mutual Funds, Inc.) as of December 31, 1999,
and the related statements of operations, the statements of changes in net
assets, and the financial highlights for each of the periods indicated. These
financial statements and financial highlights are the responsibility of the
Funds' management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial positions of The
Internet Fund and The Medical Fund of Kinetics Mutual Funds, Inc. as of December
31, 1999, the results of their operations, the changes in their net assets, and
the financial highlights for each of the periods indicated in conformity with
generally accepted accounting principles.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio
January 18, 2000
22
<PAGE> 24
KINETICS MUTUAL FUNDS, INC.
1311 Mamaroneck Avenue
White Plains, NY 10605
INVESTMENT ADVISER,
SHAREHOLDER SERVICING AGENT
AND ADMINISTRATOR
Kinetics Asset Management, Inc.
1311 Mamaroneck Avenue
White Plains, NY 10605
INDEPENDENT ACCOUNTANTS
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, OH 44145
DISTRIBUTOR
T.O. Richardson Securities, Inc.
2 Bridgewater Road
Farmington, CT 06032
SUB-ADMINISTRATOR,
FUND ACCOUNTANT AND
TRANSFER AGENT
Firstar Mutual Fund Services, LLC
615 East Michigan Street
Milwaukee, WI 53202
CUSTODIAN
Firstar Bank, N.A.
615 East Michigan Street
Milwaukee, WI 53202
THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS.
23
