Investment Adviser
KINETICS ASSET MANAGEMENT, INC.
Minimum Initial Investment -- $1,000
TABLE OF CONTENTS
RISK/RETURN SUMMARY............................................................1
WHO MAY WANT TO INVEST.........................................................2
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.......................................................7
HOW TO PURCHASE SHARES.........................................................7
HOW TO REDEEM SHARES...........................................................9
EXCHANGE PRIVILEGE............................................................10
DISTRIBUTION AND TAXES........................................................11
DISTRIBUTION OF SHARES........................................................12
MASTER/FEEDER FUND STRUCTURE..................................................12
COUNSEL AND INDEPENDENT AUDITOR...............................................13
FINANCIAL HIGHLIGHTS..........................................................13
THE SMALL CAP OPPORTUNITIES FUND
RISK/RETURN SUMMARY
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INVESTMENT OBJECTIVE
The investment objective of 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 small
capitalization companies that provide attractive valuation opportunities due to
short-term earnings disappointments or the lack of institutional ownership or
significant analyst coverage.
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 portfolio securities selected by the
investment adviser may decline in value or not increase in value when
the stock market is rising in general and may fail to meet the Fund's
investment objective.
o LIQUIDITY RISKS: The investment adviser may not be able to sell
portfolio securities at an optimal time or price.
o SMALL COMPANY RISKS: The Fund invests in the common stocks of
small-sized companies. Small-sized companies often have narrower
markets and more limited managerial and financial resources than do
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.
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 associated with
investment in foreign securities 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
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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 fiscal 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.
FEE TABLE
SHAREHOLDER TRANSACTION EXPENSES1
(FEES PAID DIRECTLY FROM YOUR INVESTMENT)
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
Exchange Fee2 None
Maximum Account Fee3 None
ESTIMATED ANNUAL OPERATING EXPENSES
(EXPENSES DEDUCTED FROM FUND ASSETS)
Management Fees 1.25%
Distribution (Rule 12b-1) Fees None
Other Expenses 0.75%
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Estimated Total Annual Fund Operating Expenses 2.00%
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1 Although no sales loads or transaction fees are charged, you will be
assessed fees for outgoing wire transfers, returned checks and
telephone exchanges between the Fund and any other series of Kinetics
Mutual Funds, Inc.
2 The Fund's Transfer Agent charges a $5 fee to shareholder accounts for
telephone exchanges between the Fund and any other series offered by
Kinetics Mutual Funds, Inc.
3 IRA Accounts are assessed a $12.50 annual fee.
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
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$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 small capitalization
companies.
The Fund's investment adviser believes that favorable investment opportunities
are available through companies that: have a market capitalization under $1
billion, have little or no institutional ownership, have had short-term earnings
disappointments, have had a recent IPO but have not attracted significant
analyst coverage, are selling at or below book or replacement value, and have
price-to-earnings ratios that are less than one half of their projected growth
rate.
Portfolio securities will be selected from companies that are engaged in a
number of industries. These companies may be large, medium or small in size if,
in the investment adviser's opinion, they meet the Fund's investment criteria.
Such companies include, but are not limited to, the following:
o RETAILERS: Companies that sell retail products and services via traditional
stores, catalogues, telemarketing, and Internet web-sites.
o MEDIA COMPANIES: Companies that provide print, broadcast, cable, satellite
and web-based information and entertainment content.
o FINANCIAL SERVICE COMPANIES: Companies that engage in financial service
transactions such as banking, credit cards, investment services, etc.
The investment adviser 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.
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 U.S. 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
instruments include:
o commercial paper
o certificates of deposit, demand and time deposits and banker's acceptances
o U.S. Government securities (i.e., U.S. Treasury obligations)
o repurchase agreements
To the extent that 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 based on 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.
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.
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 that 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-CAPITALIZATION COMPANIES
The Fund will invest in small-capitalization companies. Accordingly, the Fund
may be subject to the additional risks associated with investment in companies
with smaller capital structures (generally a market capitalization of $1 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 do those of larger, more established companies. If the
Fund is heavily invested in these securities and the value of these securities
suddenly decline, the net asset value of the Fund will be more susceptible to
sudden and significant losses.
FOREIGN SECURITIES
Investing in foreign securities can carry higher returns than those generally
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. The Fund 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 investment 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 primarily 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.
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 the Fund.
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"), 1311 Mamaroneck Avenue, Suite 130, White Plains, New
York, 10605. 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. The investment
adviser has entered into a Research Agreement with Horizon Asset Management,
Inc. for which it is responsible for the payment of all fees owing to Horizon.
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 fund and financial services industries. Lee Schultheis
is the Managing Director and Chief Operating Officer of Kinetics. Mr.
Schultheis has more than 20 years of experience in the mutual fund and financial
services industries.
PORTFOLIO MANAGERS
FRED A. FROEWISS, is the Co-Portfolio Manager of the Small Cap Portfolio. Prior
to joining Kinetics in 1999, Mr. Froewiss was the Vice President of Investments
at Janney Montgomery Scott, LLC from 1992 to 1999. Earlier, Mr. Froewiss spent
10 years as a portfolio manager in the Private Banking Division of Citibank.
He started his career at IBM Corp. in the controller's office. Mr. Froewiss
holds a Bachelor of Science in Accounting and a Masters of Business
Administration from Pace University.
MURAY STAHL is Co-Portfolio Manager of the Small Cap Portfolio. Mr. Stahl is
Chairman and a co-founder of Horizon. Previously, he was with Bankers Trust
Company for 16 years as a portfolio manager and research analyst, and managed
approximately $600 million of individual, trust and institutional client assets.
As the senior fund manager, he directed the investments of three of the banks
Common Trust Funds, the Special Opportunity, Utility, and Tangible Assets Funds.
Mr. Stahl also served as a member of the Equity Strategy Group as well as the
Investment Strategy Group, which established asset allocation guidelines for the
Private Bank, and was deeply involved in new product development.
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.
The Fund's investment 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 of the Fund. The Fund may use independent pricing services to assist
in calculating its NAV.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times when the Exchange is
closed. In computing the NAV of the Fund, the investment adviser values foreign
securities held by the Fund 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. Prices of 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 the Fund's 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 Small Cap Opportunities Fund, c/o Kinetics Mutual Funds, Inc.,
to:
REGULAR MAIL: OVERNIGHT OR EXPRESS MAIL:
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KINETICS MUTUAL FUNDS, INC. KINETICS MUTUAL FUNDS, INC.
THE SMALL CAP OPPORTUNITIES FUND THE SMALL CAP OPPORTUNITIES 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
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 follows:
o Wire to: Firstar Bank, 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 Small Cap Opportunities 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 at (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
accounts. 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 p.m. eastern time) 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). Please 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.
WRITTEN REDEMPTION
You can execute most redemptions by furnishing an unconditional written request
to the Fund to redeem your shares at the current NAV. Redemption requests in
writing should be sent to the Transfer Agent at:
REGULAR MAIL: OVERNIGHT OR EXPRESS MAIL:
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KINETICS MUTUAL FUNDS, INC. KINETICS MUTUAL FUNDS, INC.
THE SMALL CAP OPPORTUNITIES FUND THE SMALL CAP OPPORTUNITIES 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 your 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 you correctly state your Fund account number
o the name in which your 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.
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 any other series of
Kinetics Mutual Funds, Inc. at no charge. However, if the exchange is requested
via telephone, a $5 per exchange transaction cost will be assessed. You should
carefully read the prospectus of a fund before exchanging shares into that fund
and retain it 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.
You should request your exchange prior to the close of the Exchange to obtain
that day's closing NAV. Exchange requests received after the close of the
Exchange will be treated as though received on the next business day.
Call (800) 930-3828 to learn more about the other Kinetics Mutual Funds and
about exercising your exchange privilege.
DISTRIBUTION AND TAXES
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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
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, 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
- --------------------------------------------------------------------------------
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 invest all of their assets in the same portfolio instead of
managing them separately thus achieving certain economies of scale. The SAI
contains more information about the Fund, Master/Feeder Fund Structure and the
types of securities in which the Fund may invest.
COUNSEL AND INDEPENDENT AUDITOR
- --------------------------------------------------------------------------------
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, has been selected as the independent auditor of the Fund.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Because the Fund had not commenced investment operations prior to the date of
this Prospectus, there are no financial highlights to report.
KINETICS MUTUAL FUNDS, INC.
THE SMALL CAP OPPORTUNITIES FUND
INVESTMENT ADVISER, KINETICS ASSET MANAGEMENT, INC.
ADMINISTRATOR, AND 1311 MAMARONECK AVENUE
SHAREHOLDER SERVICING AGENT WHITE PLAINS, NY 10605
LEGAL COUNSEL SPITZER & FELDMAN P.C.
405 PARK AVENUE
NEW YORK, NY 10022
INDEPENDENT AUDITOR MCCURDY AND ASSOCIATES CPA'S, INC.
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, 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 MARCH 10, 2000
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 (TEXT ONLY VERSION):
HTTP://WWW.SEC.GOV
HTTP://WWW.KINETICSFUNDS.COM
SEC:
You may review and obtain copies of Kinetic Mutual Funds information (including
the SAIs) at the SEC Public Reference Room in Washington, D.C. Please call
1-202-942-8090 for information relating to the operation of the Public Reference
Room. Reports and other information about the Fund are available on the EDGAR
Database on the SEC's Internet site at . Copies of the information may be
obtained, after paying a duplicating fee, by electronic request at the following
E-mail address: , or by writing the Public Reference Section, Securities and
Exchange Commission, Washington, D.C. 20549-0102.
1940 Act File No. 811-09303
THE SMALL CAP OPPORTUNITIES FUND
a series of Kinetics Mutual Funds, Inc.
1311 Mamaroneck Avenue
White Plains, New York 10605
(800) 930-3828
March 10, 2000
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 March 10, 2000.
To obtain a copy of the Prospectus, please write the Fund at the address set
forth above or call the telephone number shown above.
THE SMALL CAP OPPORTUNITIES FUND
The Fund.......................................................................3
Investment Objective, Strategies, and Risks....................................3
Investment Policies and Associated Risks.......................................3
Investment Restrictions........................................................6
Temporary Investments..........................................................7
Portfolio Turnover.............................................................7
Management of the Fund.........................................................7
Control Persons and Principal Holders of Securities............................9
Investment Adviser.............................................................9
Administrative Services.......................................................10
Custodian.....................................................................11
Capitalization................................................................11
Valuation of Shares...........................................................11
Purchasing Shares.............................................................12
Redemption of Shares..........................................................13
Brokerage.....................................................................14
Taxes.........................................................................14
Performance Information.......................................................15
Independent Auditors..........................................................16
Financial Statements..........................................................16
Appendix......................................................................17
THE FUND
- --------------------------------------------------------------------------------
The Small Cap Opportunities Fund (the "Fund") is a series of Kinetics Mutual
Funds, Inc., a Maryland corporation, incorporated on March 26, 1999. The Fund's
principal office is located at 1311 Mamaroneck Avenue, White Plains, New York
10605. 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. Except
during temporary, defensive periods, at least 65% of the Fund's total assets
will be invested in securities of domestic and foreign small capitalization
companies that provide attractive valuation opportunities due to lack of
institutional ownership, lack of significant analyst coverage, or a short-term
earnings disappointments. 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. 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
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 of
assets. If the Fund invested all of its assets in a Master Portfolio, it would
hold 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 would retain the right to
withdraw the Fund's investment from a Master Portfolio at any time it determines
that it would be in the best interest of shareholders to do so; the Fund would
then resume investing directly in individual securities of other issuers or
invest in another Master Portfolio.
The Board of Directors has authorized this fundamental investment policy to
facilitate a conversion to a Master/Feeder Fund Structure 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 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 Statement of
Additional Information would be amended to reflect the implementation of the
Fund's conversion and its shareholders would be notified.
INVESTMENT RESTRICTIONS
- --------------------------------------------------------------------------------
The investment restrictions of the Fund may be changed only with the approval of
the holders of a majority of the Fund's outstanding voting securities.
1. The Fund will not act as underwriter for securities of other issuers.
2. The Fund will not make loans.
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 the untimely disposition of portfolio securities and then 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, 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
Portfolio's total assets would be invested in the securities of such
industry. Except during temporary defensive periods, at least 65% of the
Fund's total assets will be invested in the securities of domestic and
foreign small capitalization companies that provide attractive valuation
opportunities due to lack of institutional ownership, lack of significant
analyst coverage, or a short-term earnings disappointments
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
portfolio securities held by the Fund will not constitute a violation of such
limitation.
TEMPORARY INVESTMENTS
- --------------------------------------------------------------------------------
In order to have funds available for redemption and investment opportunities,
the Fund may also hold a portion of its assets 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 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 management and affairs of the Fund are supervised by the Board of Directors
of the Company. The Board consists of eight individuals, five 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 of the Company are listed below with their addresses, present
positions with the Company and principal occupations over at least the last five
years. "Interested persons" are designated by an asterisk that appears beside
their names.
<TABLE>
<CAPTION>
- ----------------------------------- --------- ------------------------ -------------------------------------------
PRINCIPAL OCCUPATION
NAME AND ADDRESS AGE POSITION 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 Boards Management, Inc. (1999 to Present);
New York, NY 10173 President, The Internet Fund, Inc. (1999
to Present); Managing Director, Chase
Manhattan Bank (1993 to 1999).
- ----------------------------------- --------- ------------------------ -------------------------------------------
*Kathleen Campbell 34 Director Attorney, Campbell and Campbell,
2 Madison Avenue Counselors-at-Law (1995 to Present).
Valhalla, NY 10595
- ----------------------------------- --------- ------------------------ -------------------------------------------
*Murray Stahl 46 Director President, Horizon Asset Management, an
342 Madison Avenue investment adviser (1994 to Present).
New York, NY 10173
- ----------------------------------- --------- ------------------------ -------------------------------------------
Steven T. Russell 36 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 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 Director Attorney, Bracken & Margolin, LLP (1997
20 Franklin Boulevard to Present).
Long Beach, NY 11561 Gabor & Gabor (1995 to 1997)
- ----------------------------------- --------- ------------------------ -------------------------------------------
Joseph E. Breslin 45 Director Senior Vice President, Marketing & Sales,
One State Street IBJ Whitehall Financial Group, a
New York, NY 10004 financial services company (1999 to
Present); formerly President, J.E.
Breslin & Co., an investment management
consulting firm (1994 to 1999).
- ----------------------------------- --------- ------------------------ -------------------------------------------
John J. Sullivan 68 Director Retired; Senior Advisor, Long Term Credit
31 Hemlock Drive Bank of Japan, Ltd.; Executive Vice
Sleepy Hollow, NY 10591 President, LTCB Trust Company.
- ----------------------------------- --------- ------------------------ -------------------------------------------
*Lee W. Schultheis 43 Vice President & Managing Director & COO of Kinetics Asset
342 Madison Avenue Treasurer of the Management (1999 to Present); President &
New York, NY 10173 Company Director of Business. Development, Vista
Fund Distributors, Inc. (1995 to 1999);
Managing Director, Forum Financial Group,
a mutual fund services company.
- ----------------------------------- --------- ------------------------ -------------------------------------------
</TABLE>
COMPENSATION
For their service as Directors, the non-interested 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. None of the executive officers receive compensation from the Fund.
The following tables provide compensation information for the non-interested
Directors for the year-ended December 31, 1999.
<TABLE>
<CAPTION>
COMPENSATION TABLE
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
TOTAL COMPENSATION
AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL FROM FUND AND FUND
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON COMPLEX PAID TO
NAME AND POSITION FROM FUND PART OF FUND EXPENSES RETIREMENT DIRECTORS
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C> <C>
Steven R. Samson None None None None
Chairman and Director
Kathleen Campbell None None None None
Director
Murray Stahl* None None None $3,844
Director
Steven T. Russell None None None $5,500
Director
Douglas Cohen, CPA None None None $6,094
Director
William J. Graham None None None $5,500
Director
Joseph E. Breslin None None None $4,500
Director
John J. Sullivan None None None $5,500
Director
- ---------------------------- ----------------- ----------------------- ---------------------- ------------------------
</TABLE>
* Murray Stahl became an "interested person" of the Fund (as that term is
defined in the 1940 Act) as of December 15, 1999. Previous to becoming an
"interested person", Mr. Stahl received $3,844 as total compensation from
Kinetics Mutual Funds, Inc. for his service as a non-interested director.
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
beneficially 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.
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. Steven R. Samson is the President and Chief Executive Officer of
Kinetics. Mr. Samson has over 24 years experience in the mutual funds and
financial services industries. Mr. Lee Schultheis is the Managing Director and
Chief Operating Officer of Kinetics and has more than 20 years experience in
the mutual funds and financial services industries.
On December 15, 1999 the Board of the Directors of the Fund approved a
management and advisory contract (the "Agreement") with Kinetics. This Agreement
continues 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 investment decisions are made subject to the direction
and supervision 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 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. Kinetics has also entered
into a Research Agreement with Horizon Assets Management, Inc. ("Horizon") for
which it is solely responsible for the payment of all fees owing to Horizon.
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 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, located at 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 disbursement 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, N.A. is custodian for the securities and cash of the Fund. Under
the Custodian Agreement, Firstar Bank, 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 0.010% of the
Fund's average daily net assets with a minimum annual fee of $3,000.
CAPITALIZATION
- --------------------------------------------------------------------------------
The authorized capitalization of 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
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Shares of the Fund are sold on a continual basis at the NAV per share next
computed following acceptance of an order by the Fund. The Fund's NAV 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.
The Fund's investment 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 of
the Fund's shares.
The Fund's investment securities that are 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.
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
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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, only 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 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 NAV 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 NAV. It is the dealer's responsibility to transmit orders so
that they will be received by the Distributor before 4:00 p.m. eastern standard
time.
REDEMPTION OF SHARES
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To redeem shares, shareholders may send a written request in "good order" to:
The Small Cap Opportunities Fund
Kinetics Mutual Funds, Inc.
c/o Firstar Mutual Fund Services
P.O. Box 701
Milwaukee, WI 53201-0701
(800) 930-3828
A written request in "good order" to redeem shares must include:
|X| the shareholder's name,
|X| the name of the Fund,
|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
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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
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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 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 Company's Board of Directors. Dividends
received shortly after purchase of shares by an investor will have the effect of
reducing the NAV 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
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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 the 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 NAV 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
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 the 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 the 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 mutual fund index 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
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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.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
There is no annual report available at this time.
APPENDIX
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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.
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.
