Filed with the Securities and Exchange Commission on September 29, 2000
1933 Act Registration File No. 333-78275
1940 Act File No. 811-09303
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 6 |X|
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 9 |X|
(Check appropriate box or boxes.)
KINETICS MUTUAL FUNDS, INC.
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(Exact Name of Registrant as Specified in Charter)
1311 Mamaroneck Ave
White Plains, New York 10605
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(Address and Zip Code of Principal Executive Offices)
(800) 930-3828
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Registrant's Telephone Number, including Area Code
Lee Schultheis
1311 Mamaroneck Ave
White Plains, New York 10605
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(Name and Address of Agent for Service)
With a copy to:
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Thomas R. Westle, Esq.
Spitzer & Feldman P.C.
405 Park Avenue
New York, New York 10022
As soon as practical after the effective date of this Registration Statement
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Approximate Date of Proposed Public Offering
Shares of Common Stock
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(Title of Securities Being Registered)
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
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on ___________ pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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on ___________ pursuant to paragraph (a)(1)
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X 75 days after filing pursuant to paragraph (a)(2)
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on ____________ pursuant to paragraph (a)(2) of Rule 485.
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December 15, 2000 PROSPECTUS www.kineticsfunds.com
[LOGO] The ENERGY Fund
A series of Kinetics Mutual Funds, Inc.
[LOGO] Kinetics Mutual Funds, Inc.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
TABLE OF CONTENTS
The Energy Fund...............................................................2
Main Risks of Investing in the Fund...........................................5
Management of the Fund and the Portfolio......................................7
Valuation of Fund Shares......................................................8
How to Purchase Shares........................................................9
How to Redeem Shares.........................................................10
Exchange Privilege...........................................................12
Distributions and Taxes......................................................12
Distribution of Shares.......................................................13
Unique Characteristics of Master/Feeder Fund Structure.......................13
Counsel and Independent Auditors.............................................14
Financial Highlights.........................................................14
[LOGO] Kinetics Mutual Funds, Inc.
PROSPECTUS
This Prospectus provides vital information about the Fund. For your own benefit
and protection, please read it before you invest, and keep it on hand for
future reference.
INVESTMENT ADVISER
Kinetics Asset Management, Inc.
MINIMUM INITIAL INVESTMENT
$1,000
DECEMBER 15, 2000
OVERVIEW
THE ENERGY FUND (the "Fund") is a no-load, non-diversified investment company.
Unlike many other investment companies which directly acquire and manage their
own portfolios of securities, the Fund seeks its investment objective by
investing all of its investable assets in The Energy Portfolio a series of
Kinetics Portfolios Trust, a Delaware business trust (the "Portfolio"). The
Portfolio invests primarily in the equity securities of domestic and foreign
companies engaged in the field of energy generation, exploration, distribution,
equipment development and a range of alternative energy-related disciplines. The
Portfolio is a no-load, non-diversified investment company with investment
objectives and strategies identical to that of the Fund. Investors should
carefully consider this investment approach. For additional information
regarding this investment structure, see "Unique Characteristics of
Master/Feeder Fund Structure" on page 13.
The Statement of Additional Information contains more information about the Fund
and the types of securities in which it may invest.
WHO MAY WANT TO INVEST
The 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 growth
equity investing
o are willing to accept the volatility associated with equity investing
THE ENERGY FUND
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND PRINCIPAL RISKS
INVESTMENT OBJECTIVE
The investment objective of the Fund is long-term growth of capital. The Fund
seeks to obtain current income as a secondary objective.
PRINCIPAL INVESTMENT STRATEGIES
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio. Under normal circumstances, the Portfolio
invests at least 65% of its total assets in common stocks, convertible
securities, warrants and other equity securities having the characteristics of
common stocks, such as American Depositary Receipts ("ADRs") and International
Depositary Receipts ("IDRs"), of domestic and foreign companies engaged in the
field of energy generation, exploration, distribution, equipment development and
a range of alternative energy-related research and technologies. The investment
adviser believes that the field of energy offers unique investment opportunities
because of increasing demand and developing scarcities of traditional energy
sources.
Portfolio securities will be selected by the investment adviser from companies
that are engaged in the development, refinement, distribution and exploration of
energy resources, and the development of alternative energy resources and
technologies. These companies may be large, medium or small in size if,
in the investment adviser's opinion, they meet the Portfolio's investment
criteria. Such companies include, but are not limited to, the following:
o Fossil fuel providers and explorers.
o Alternative energy research and development, and commercialization
firms.
o Energy infrastructure builders.
o Independent energy providers.
The investment adviser selects portfolio securities by evaluating a company's
positioning and business model as well as its ability to grow and expand or
achieve a competitive advantage in cost/profitability and brand image in the
energy field. The investment adviser also considers a company's fundamentals by
reviewing its balance sheets, corporate revenues, earnings and dividends.
Furthermore, the investment adviser looks at the amount of capital a company
spends on research and development. 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
Portfolio may invest up to 100% of its assets in high quality U.S. short-term
debt securities and money market instruments. The Portfolio 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
acceptance
o U.S. Government securities (i.e., U.S. Treasury obligations)
o repurchase agreements
To the extent that the Portfolio engages in a temporary, defensive strategy, the
Portfolio and therefore, the Fund, may not achieve its investment objective.
FUND STRUCTURE
The Portfolio has investment objectives identical to that of the Fund. The
Fund may withdraw its investment from the Portfolio at any time if the Board of
Directors of the Company determines that it is in the best interests of the Fund
to do so. Upon any such withdrawal, the Directors will consider what action
might be taken, including investing all of the Fund's investable assets in
another pooled investment entity having substantially the same objective and
strategies as the Fund or retaining an investment adviser including, the current
investment adviser, to manage the Fund's assets directly.
PRINCIPAL RISKS OF INVESTMENT
Investing in common stocks has inherent risks that could cause you to lose
money. The principal risks of investing in the Fund and indirectly the Portfolio
are listed below and could adversely affect the net asset value, total return
and the value of the Fund, Portfolio and your investment.
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 Portfolio 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
in general is rising and may fail to meet the Portfolio's investment
objectives.
o LIQUIDITY RISKS: The investment adviser may not be able to sell portfolio
securities at an optimal time or price.
o INDUSTRY RISKS: Mutual funds that invest in a particular industry carry a
risk that a group of industry-related stocks will decline in price due to
industry specific developments. Companies in the same or similar industries
may share common characteristics and are more likely to react comparably to
industry specific market or economic developments.
o ENERGY INDUSTRY SPECIFIC RISKS: Companies that conduct business in the
energy industry or derive a substantial portion of their revenues from
energy-related activities in general are subject to changes in market
supply and demand for energy commodities and rates of change in the
technology for alternative energy sources which is generally higher than
that of other industries.
o SMALL AND MEDIUM-SIZE COMPANY RISKS: The Portfolio may invest in the equity
securities of small, medium and large-size companies. Small and medium-size
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 Portfolio's
assets.
o FOREIGN SECURITIES RISKS: The Portfolio 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 Portfolio's assets may be concentrated in the common stock of any
single issuer, which may make the value of the Portfolio's shares and
therefore, the Fund's shares, more susceptible to certain risks than shares
of a diversified mutual fund.
o OPTION TRANSACTION RISKS: The Portfolio may write and sell options on
securities in which it invests for hedging purposes and/or direct
investment. Options contain certain special risks including the imperfect
correlation between the value of the option and the value of the underlying
asset.
FEES AND EXPENSES OF THE FUND
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 TABLE1
SHAREHOLDER TRANSACTION EXPENSES2 (fees paid directly from your investment)
Maximum Sales Charge (Load) Imposed on Purchases None
(as a percentage of offering price)
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 Fee3 None
Maximum Account Fee4 None
ESTIMATED ANNUAL OPERATING EXPENSES (expenses deducted from Fund assets)
Management Fees5 1.25%
Distribution (Rule 12b-1) Fees None
Other Expenses 0.75%
Total Annual Fund Operating Expenses 2.00%
1. This fee table reflects the aggregate expenses of the Fund and the Portfolio.
2. Although no sales loads or transaction fees are charged, you will be assessed
fees for outgoing wire transfers, returned checks and exchanges executed by
telephone between the Fund and any other series of Kinetics Mutual Funds, Inc.
3. The Fund's Transfer Agent charges a $5 transaction fee to shareholder
accounts for telephone exchanges between any two series of Kinetics Mutual
Funds, Inc. The Transfer Agent does not charge a transaction fee for written
exchange requests.
4. IRA accounts are assessed a $12.50 annual fee.
5. The management fees paid by the Fund reflect the fees paid by the Fund and
the Portfolio for investment advisory services.
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 for the Fund would
be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
$203 $627 $1,078 $2,327
MAIN RISKS OF INVESTING IN THE FUND
The principal risks of investing in the Fund are described previously in this
Prospectus. The following list provides more detail about some of those risks,
along with information on additional types of risks that may apply to the Fund.
INVESTING IN MUTUAL FUNDS
All mutual funds carry risks that may cause you to lose money on your investment
in the Fund. In general, the risks associated with the use of the Master/Feeder
Fund Structure and the risks associated with your investment in the Fund are
substantially identical to the risks associated with the Fund's investment in
the Portfolio. The following describes the primary risks to the Fund and the
Portfolio based on the corresponding Portfolio due to a Portfolio's specific
investment objective and strategies shared by the Fund and the Portfolio.
As all investment securities are subject to inherent market risks and
fluctuations in value due to earnings, economic and political conditions and
other factors, neither the Fund nor the Portfolio can give any assurance that
its investment objective will be achieved.
MARKET RISK
The net asset value of the Portfolio 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
Portfolio 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 Portfolio 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 Portfolio's shares and total
return will fluctuate, and your investment in the Fund may be worth more or less
than your original cost when you redeem your shares.
ENERGY INDUSTRY SPECIFIC RISKS
The value of the Portfolio's shares will be susceptible to factors affecting the
energy industry, such as volatile market supply and demand conditions and
changes in domestic government policies which may have a material effect on the
products and services of this industry. Furthermore, securities of companies in
this industry tend to be more volatile than securities of companies in other
industries. Competitive pressures and changing demand may have a significant
effect on the financial condition of energy-related companies. Alternative
energy-related companies spend heavily on research and development and are
especially sensitive to the risk of product obsolescence. The occurrence of any
of these factors, individually or collectively, may adversely affect the value
of the Portfolio's shares and your investment in the Fund.
OTHER SECURITIES A PORTFOLIO MIGHT PURCHASE
Under normal market conditions, the Portfolio invests 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 Portfolio 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.
SECURITIES LENDING
The Portfolio 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 33 1/3% 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
Portfolio if the other party should default on its obligation and the Portfolio
is delayed or prevented from recovering the collateral. In the event that the
original seller defaults on its obligation to repurchase, the Portfolio 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
Portfolio forced to sell such collateral in this manner would suffer a loss.
NON-DIVERSIFICATION
The Portfolio is classified as "non-diversified" under federal securities laws
which means that one-half of the Portfolio'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 Portfolio's total assets. As a result of its non-diversified
status, the Portfolio's shares may be more susceptible to adverse changes in the
value of the securities of a particular company than would be the shares of a
diversified investment company.
INVESTMENT IN SMALL AND MEDIUM-SIZE COMPANIES
The Portfolio may invest in small or medium-size companies. Accordingly, the
Portfolio may be subject to the additional risks associated with investment in
companies with small or medium-size capital structures (generally a market
capitalization of $5 billion or less). The market prices of the securities of
such companies tend to be more volatile than those of larger companies. Further,
these securities tend to trade at a lower volume than those of larger, more
established companies. If the Portfolio is heavily invested in these securities
and the value of these securities suddenly decline, the net asset value of the
Portfolio and your investment in the Fund will be more susceptible
to 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 Portfolio 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 and equity securities and U.S. 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 Fund's
investments in those countries. Additional risks include currency fluctuations,
political and economic instability, differences in financial reporting standards
and less stringent regulation of securities markets.
PORTFOLIO BORROWING
The Portfolio may leverage up to 5% of its assets to fund investment activities
or to achieve higher returns. The Portfolio may borrow money from banks for
temporary or emergency purposes in order to meet redemption requests. To reduce
its indebtedness, the Portfolio 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 Portfolio on borrowed funds would decrease the net earnings of both the
Portfolio and your investment in the Fund.
DERIVATIVES RISK
The Portfolio may invest in derivatives such as options and futures. The
successful use of these investment practices depends on the portfolio manager's
ability to correctly forecast stock price movements and/or currency exchange
rate movements. Should stock prices or exchange rates move unexpectedly, the
Portfolio may not achieve the anticipated benefits of the transactions, or may
realize losses, and thus be in a worse position than if such strategies had not
been used. Unlike many exchange-traded futures contracts and options on futures
contracts, there are no daily price fluctuation limits for certain options and
forward contracts, and adverse market movements could therefore continue to an
unlimited extent over a period of time. In addition, the correlation between
movements in the prices of futures contracts, options and forward contracts and
movements in the prices of the securities and currencies hedged or used for
cover will not be perfect and could produce unanticipated losses.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
INVESTMENT ADVISER
The Portfolio's investment adviser is Kinetics Asset Management, Inc.
("Kinetics" or the "investment adviser"), 1311 Mamaroneck Avenue, Suite 130,
White Plains, New York, 10605. Founded in 1996, Kinetics provides investment
advisory services to a family of eleven 100% no-load mutual funds with
discretionary management authority over approximately $1.17 billion in assets at
December 31, 1999. The investment adviser conducts investment research and
supervision for the Portfolio and is responsible for the purchase and sale of
securities for the Portfolio's assets. The investment adviser receives an annual
fee from the Portfolio for its services of 1.25% of the Portfolio's average
daily net assets. The investment adviser has entered into a Research Agreement
with Horizon Asset Management, Inc. ("Horizon Asset Management"), a New York
based investment management and research firm, for which it is responsible for
the payment of all fees owing to Horizon Asset Management.
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 Chief Operating Officer of
Kinetics. Mr. Schultheis has more than 22 years of experience in the mutual
fund and financial services industries.
PORTFOLIO MANAGERS
PETER B. DOYLE is the Chief Investment Strategist for the Portfolio. He is
primarily responsible for the day-to-day management of the Portfolio's assets
and securities. In early 1996, Mr. Doyle co-founded Kinetics, the investment
adviser to the Portfolio. Previously, Mr. Doyle co-founded and has been a
Managing Director of Horizon Asset Management. From 1988 through late 1994, Mr.
Doyle was an Investment Officer in Bankers Trust Company's Investment Services
Group, where he was responsible for managing approximately $250 million in
assets. During his tenure at Bankers Trust Company, Mr. Doyle served on the
Finance and Utility research sub-groups. Mr. Doyle holds a Bachelor of Science
in Economics from St. John's University and a Masters of Business Administration
from Fordham University.
BRUCE P. ABEL is Co-Portfolio Manager of the Portfolio. Mr. Abel's primary
duties include research and analysis of developing scientific technologies and
innovations in the energy and alternative-energy industries. Prior to joining
Kinetics in 1999, Mr. Abel was employed with Brookhaven National Laboratory
since 1989 where he worked researching, developing and implementing technical
and scientific programs and systems in the areas of nuclear physics, computer
programming, and industrial design. During that time, Mr. Abel was also a
freelance writer for Academic Science News and Review, researching, reporting,
and providing scholarly analysis and insight on a myriad of issues and
developments in the fields of science and technology. Mr. Abel has over ten
years experience in the fields of science, chemistry, physics, and engineering.
Mr. Abel holds a Masters Degree in Mechanical Engineering with an emphasis on
Nuclear Engineering, and has also studied extensively in the areas of Applied
Mathematics, Hydrodynamics, Aerodynamics, and Physics.
VALUATION OF FUND SHARES
Shares of the Fund are sold at 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 = 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 NAV
of the Portfolio is calculated in an identical manner as that of the Fund.
The Portfolio's 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 Trust's Board of
Trustees. The Portfolio may use independent pricing services to assist in
calculating the NAV of the Portfolio's shares.
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 and Portfolio, the investment adviser
values foreign securities held by the Portfolio 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 Portfolio's securities, these
securities may be valued at their fair value as determined in good faith by the
Trust's Board of Trustees.
HOW TO PURCHASE SHARES
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 a shareholder's 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 the Fund's 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 the Fund's 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 ENERGY FUND C/O KINETICS MUTUAL FUNDS, INC., TO:
REGULAR MAIL OVERNIGHT OR EXPRESS MAIL
KINETICS MUTUAL FUNDS, INC. KINETICS MUTUAL FUNDS, INC.
THE ENERGY FUND THE ENERGY 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: 0420-00013
o Credit: Firstar Mutual Fund Services, LLC
o Account: 112-952-137
o Further Credit: Kinetics Mutual Funds, Inc.
THE ENERGY 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
IN GENERAL
You may redeem part or all of the Fund's shares on any business day that the
Fund calculates its 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 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 will not be 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
KINETICS MUTUAL FUNDS, INC. KINETICS MUTUAL FUNDS, INC.
THE ENERGY FUND THE ENERGY 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 providers 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 the 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
shares of the Fund, 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 FUNDS' 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 shareholders with written notice 30 days prior to
redeeming the shareholder's 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
You can exchange your shares in the Fund for shares of any other fund offered by
the Company. 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. 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 market close 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 mutual funds offered by the
Company and about exercising your exchange privilege.
DISTRIBUTIONS AND TAXES
DISTRIBUTIONS
Distributions (whether treated for tax purposes as ordinary income or long-term
capital gains) to shareholders of the Fund are generally 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 New Account Application Form to receive distributions as follows:
Option 1: To receive income dividends 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 December.
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 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 will be reinvested in your account at the then
current NAV of the Fund and your election will be converted to the purchase of
additional shares.
TAXES
The Fund intends 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 will generally 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 distributions in
accordance with the calendar year distribution requirement. A distribution will
be treated as though 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
long-term 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 such distributions 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
Fund's 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 New Account Application Form, 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
Kinetics Funds Distributor, Inc., an affiliate of Kinetics, 1311 Mamaroneck
Avenue, Suite 130, White Plains, New York, 10605, is the distributor for
the shares of the Fund. Kinetics Funds Distributor, Inc. is a registered
broker-dealer and member of the National Association of Securities Dealers,
Inc. Shares of the Fund are offered on a continuous basis.
SHAREHOLDER SERVICING AGENT
Kinetics is 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 Funds.
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 and the Portfolio. Kinetics
will be entitled to receive an annual administration fee equal to the total of
0.05% of the Fund's average daily net assets and 0.10% of the Portfolio's. Out
of these fees, Kinetics 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 and the Portfolio 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 as the Fund's Transfer Agent, Dividend Disbursing
Agent and Fund Accountant.
UNIQUE CHARACTERISTICS OF MASTER/FEEDER FUND STRUCTURE
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, the Fund invests all of its investable assets in the Portfolio, a
separately registered investment company. The Portfolio, in turn, invests in
securities, using the strategies described in this prospectus.
In addition to selling a beneficial interest to the Fund, the Portfolio could
also sell beneficial interests to other mutual funds or institutional investors.
Such investors would invest in the Portfolio on the same terms and conditions
as the Fund and would pay a proportionate share of the Portfolio's expenses.
However, other investors in the Portfolio are not required to sell their shares
at the same public offering price as the Fund, and might bear different levels
of ongoing expenses than the Fund. Shareholders of the Fund should be aware that
these differences would result in differences in returns experienced by the
other investors who hold shares of the Portfolio. Such differences in return are
also present in other mutual fund structures.
Smaller funds investing in the Portfolio could be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
feeder fund were to withdraw from the Portfolio, the remaining funds might
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, the Portfolio could become less diverse, resulting in increased
portfolio risk. However, the possibility also exists for traditionally
structured funds that have large or institutional investors. Investors with a
greater pro rata ownership in the Portfolio could have effective voting control
of the Portfolio.
Certain changes in the Portfolio's objectives, policies or restrictions might
require the Company to withdraw the Fund's interest in the Portfolio. Any such
withdrawal could result in a distribution in kind of portfolio securities (as
opposed to a cash distribution from the Portfolio). The Fund could incur
brokerage fees or other transaction costs if it converts such securities to
cash. In addition, a distribution in kind could result in a less diversified
portfolio of investments or adversely affect the liquidity of the Fund.
The Company's Board of Directors retains its right to withdraw the Fund's
investments from the Portfolio at any time if the Board of Directors determines
that such withdrawal would be in the best interest of the Fund's shareholders.
The Fund would then resume investing directly in individual securities of other
issuers.
The SAI contains more information about the Fund and the Portfolio, the
Master/Feeder Fund Structure and the types of securities in which the Portfolio
may invest.
COUNSEL AND INDEPENDENT AUDITORS
Legal matters in connection with the issuance of shares of common stock of the
Fund are passed upon by Spitzer & Feldman P.C., 405 Park Avenue, New York, New
York 10022. PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500,
Milwaukee, Wisconsin 53202, has been selected as independent auditors for the
Fund for the year ending December 31, 2000.
FINANCIAL HIGHLIGHTS OF THE FUND
The Fund has no historical performance as it has recently commenced operations.
KINETICS MUTUAL FUNDS, INC.
THE ENERGY FUND
Investment Adviser, KINETICS ASSET MANAGEMENT, INC.
Administrator, 1311 MAMARONECK AVENUE
and Shareholder Servicing Agent WHITE PLAINS, NY 10605
Legal Counsel SPITZER & FELDMAN P.C.
405 PARK AVENUE
NEW YORK, NY 10022
Independent Auditors PRICEWATERHOUSECOOPERS LLP
100 EAST WISCONSIN AVENUE, SUITE 1500
MILWAUKEE, WI 53202
Transfer Agent, Fund Accountant, FIRSTAR MUTUAL FUND SERVICES, LLC
and Sub-Administrator 615 EAST MICHIGAN STREET
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:
Statements of Additional Information (SAI) dated December 15, 2000
The SAI of the Fund provides more details about the Fund's policies and
management. The Fund's SAI is incorporated by reference into this Prospectus
and legally made a part of this Prospectus.
Annual and Semi-Annual Report
The annual and semi-annual reports for the Fund provide the most recent
financial reports and portfolio listings. The annual report contains a
discussion of the market conditions and investment strategies that affected the
Fund's performance during the last fiscal year.
To receive any of these documents or a prospectus of Kinetics Mutual Funds, to
request additional information about Kinetics Mutual Funds, or to make
shareholder inquires, please contact us.
By Telephone: By Internet:
(800) 930-3828 HTTP://WWW.KINETICSFUNDS.COM
By Mail:
KINETICS MUTUAL FUNDS, INC.
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53201-0701
SEC:
You may review and obtain copies of Kinetics Mutual Funds, Inc. information
(including the SAI) 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 HTTP://WWW.SEC.GOV. Copies of
the information may be obtained, after paying a duplicating fee, by electronic
request at the following E-mail address: [email protected], or by writing the
Public Reference Section, Securities and Exchange Commission, Washington, D.C.
20549-0102.
1940 Act File No. 811-09303
KINETICS MUTUAL FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
December 15, 2000
The Energy Fund
The Energy Fund (the "Fund") is a series of Kinetics Mutual Funds, Inc.,
a master/feeder fund structure. The Fund is a feeder fund to The Energy
Portfolio of the Kinetics Portfolios Trust (the "Portfolio"). Unlike many
other investment companies which directly acquire and manage their own
portfolios of securities, the Fund seek its investment objective by
investing all of its investable assets in its Portfolio. The Portfolio
is an open-end, non-diversified investment company with investment
objectives, strategies and policies that are substantially identical to
those of its feeder Fund.
This Statement of Additional Information ("SAI") provides general information
about the Fund and the Portfolio. This SAI is not a prospectus and should be
read in conjunction with the Fund's current Prospectus date December 15, 2000,
as supplemented and amended from time to time, which is incorporated hereto by
reference. To obtain a copy of the Prospectus, please write or call the Fund at
the address or telephone number below. To obtain a copy of the Prospectus and
SAI of the Portfolio dated December 15, 2000 providing general information about
the Portfolio, which is incorporated hereto by reference, please write or call
the Portfolio at the address or telephone number shown below.
KINETICS MUTUAL FUNDS, INC.
C/O FIRSTAR MUTUAL FUND SERVICES, LLC
P.O. BOX 701
MILWAUKEE, WI 53201-0701
PHONE: (800) 930-3828
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT KINETICS MUTUAL FUNDS, INC..........................1
INVESTMENT RESTRICTIONS.......................................................2
INVESTMENT POLICIES AND ASSOCIATED RISKS......................................3
TEMPORARY INVESTMENTS.........................................................10
PORTFOLIO TURNOVER............................................................10
MANAGEMENT OF THE FUND AND THE PORTFOLIO......................................10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES...........................13
INVESTMENT ADVISERS...........................................................13
SHAREHOLDER SERVICING.........................................................14
ADMINISTRATIVE SERVICES.......................................................14
DISTRIBUTOR...................................................................14
CUSTODIAN.....................................................................15
VALUATION OF SHARES...........................................................15
PURCHASING SHARES.............................................................16
REDEMPTION OF SHARES..........................................................16
BROKERAGE.....................................................................17
TAXES.........................................................................18
PERFORMANCE INFORMATION.......................................................20
INDEPENDENT AUDITORS..........................................................21
FINANCIAL STATEMENTS..........................................................21
APPENDIX......................................................................22
GENERAL INFORMATION ABOUT KINETICS MUTUAL FUNDS, INC.
--------------------------------------------------------------------------------
Kinetics Mutual Funds, Inc. (the "Company") is a Maryland corporation,
established on March 26, 1999. The Company is comprised of several series of
mutual funds, all of which are open-end investment companies. Kinetics
Portfolios Trust (the "Trust") is a Delaware business trust, established on
March 14, 2000. The Trust is comprised of several series of mutual funds, all of
which are open-end investment companies with investment objectives and
strategies identical to that of the individual funds of the Company. The Fund
and Portfolio are set up in a master/feeder fund structure where Fund is a
"feeder" fund that invests all of its investable assets in its corresponding
"master" Portfolio. The principal business office for the Company and the Trust
is located at 1311 Mamaroneck Avenue, White Plains, New York, 10605.
CAPITALIZATION
The authorized capitalization of the Company consists of 1 billion 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.
The authorized capitalization of the Trust consists of an unlimited number of
beneficial interests with no par value. Each share has equal dividend,
distribution and liquidation rights. There are no conversion or preemptive
rights applicable to any shares of the Portfolio. All shares issued are fully
paid and non-assessable. Each holder of beneficial interest has one vote for
each share held. Voting rights are non-cumulative.
The Company and the Trust each currently consist of 11 series, 10 of which are
discussed in a separate prospectus and SAI.
MASTER/FEEDER FUND STRUCTURE
Unlike other mutual funds that directly acquire and manage their own portfolio
securities, the Fund invests all of their investable assets in the Portfolio.
Accordingly, a shareholder's interest in the Portfolio underlying investment
securities is indirect. In addition to selling a beneficial interest to the
Fund, the Portfolio could also sell beneficial interests to other mutual funds
or institutional investors. Such investors would invest in the Portfolio on the
same terms and conditions and would pay a proportionate share of the Portfolio's
expenses. However, other mutual fund or institutional investors in the Portfolio
are not required to sell their shares at the same public offering price as the
Fund, and might bear different levels of ongoing expenses than the Fund.
Shareholders of the Fund should be aware that these differences would result in
differences in returns experienced by the different mutual funds or
institutional investors of the Portfolio. Such differences in return are also
present in other mutual fund structures. 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. The 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 are not materially
affected by its investment in the Portfolio, except that the assets of the Fund
are managed as part of a larger pool of assets. Since the Fund invests all of
its assets in the Portfolio, it holds only beneficial interests in the
Portfolio; the Portfolio invest directly in individual securities of other
issuers. The Fund otherwise continues its normal operation. The Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
In addition, a distribution in kind may result in a less diversified portfolio
of investments or adversely affect the liquidity of the Fund.
Certain changes in the Portfolio's objective, policies and/or restrictions may
require the Company to withdraw the Fund's interest in the Portfolio. Any
withdrawal could result in a distribution in-kind of portfolio securities (as
opposed to a cash distribution) from the Portfolio. The Company's Board of
Directors retains its right to withdraw any of the Fund's investments from the
Portfolio at any time it determines that such withdrawal would be in the best
interest of the Fund's shareholders. The Fund would then resume investing
directly in individual securities of other issuers or invest in another
portfolio of the Trust.
Smaller funds investing in the Portfolio may be materially affected by the
actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may experience higher pro
rata operating expenses, thereby producing lower returns. Additionally, the
Portfolio may become less diverse, resulting in increased portfolio risk.
However, this possibility also exists for traditionally structured funds that
have large or institutional investors.
Funds with a greater pro rata ownership in the Portfolio could have effective
voting control of the operations of the Portfolio. Whenever the Company is
requested to vote on matters pertaining to the Portfolio, the Company will hold
a meeting of shareholders of the Fund and will cast all of its votes in the
Portfolio in the same proportion as the Fund's shareholders. Shares of the Fund
for which no voting instructions have been received will be voted in the same
proportion as those shares for which instructions are received.
INVESTMENT RESTRICTIONS
--------------------------------------------------------------------------------
Unless otherwise noted, the Fund and the Portfolio have adopted and are subject
to substantially identical fundamental 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. The investment
restrictions of the Portfolio may be changed only with the approval of the
holders of a majority of the Portfolio's outstanding voting securities. As used
in this SAI, "a majority of the Fund's (or Portfolio's) outstanding voting
securities" means the lesser of (1) 67% of the shares of common stock/beneficial
interest of the Fund/Portfolio represented at a meeting at which more than 50%
of the outstanding shares are present, or (2) more than 50% of the outstanding
shares of common stock/beneficial interest of the Fund/Portfolio.
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. This policy shall not be deemed violated to the
extent that the Fund invests all of its investable assets in the Portfolio.
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 their 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. This policy shall not be
deemed violated to the extent that the Fund invests all of its investable
assets in the Portfolio.
6. The Fund will not invest in the securities of any one industry except in
domestic and foreign companies engaged in the field of energy generation,
exploration of energy resources, refinement, distribution, equipment
development and a range of alternative energy-related research and
technologies, with the exception of securities issued or guaranteed by the
U.S. Government, its agencies, and instrumentality's, if as a result, more
than 20% of the Fund's total assets would be invested in the securities of
such industry. Except during temporary defensive periods, not less than 65%
of the Fund's total assets will be invested in the securities of companies
engaged in the field of energy generation, exploration of energy resources,
refinement, distribution, equipment development and a range of alternative
energy-related research and technologies. This policy shall not be deemed
violated to the extent that the Fund invests all of its investable assets
in the Portfolio.
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 Portfolio will not constitute a violation of
such limitation. However, in the event that the Portfolio's portfolio holdings
in illiquid securities reach 15% of the value of its net assets, the Adviser is
authorized by the Board of Directors to make such adjustments as necessary to
reduce the holdings of illiquid securities to comply with the guidelines of
paragraph number 5 above.
INVESTMENT POLICIES AND ASSOCIATED RISKS
--------------------------------------------------------------------------------
The Fund's and the Portfolio's investment policies and risks are substantially
identical. The following paragraphs provide a more detailed description of the
investment policies and risks of the Fund's and Portfolio's investment policies
and risks identified in the Prospectus. Unless otherwise noted, the policies
described in this SAI pertain to the Fund and the Portfolio. Furthermore, unless
otherwise noted, the policies described in this SAI are not fundamental and may
be changed by the Board of Directors of the Fund and the Board of Trustees of
the Trust, respectively.
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 Portfolio may invest in debt securities convertible into common stocks. Debt
purchased by the Portfolio 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.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Portfolio may purchase securities on a when-issued, delayed-delivery or
forward commitment basis. These transactions generally involve the purchase of a
security with payment and delivery due at some time in the future. The Portfolio
does not earn interest on such securities until settlement and bears the risk of
market value fluctuations in between the purchase and settlement dates. If the
seller fails to complete the sale, the Portfolio may lose the opportunity to
obtain a favorable price and yield. While the Portfolio will generally engage in
such when-issued, delayed-delivery and forward commitment transactions with the
intent of actually acquiring the securities, the Portfolio may sometimes sell
such a security prior to the settlement date.
The Portfolio may also sell securities on a delayed-delivery or forward
commitment basis. If the Portfolio does so, it will not participate in future
gains or losses on the security. If the other party to such a transaction fails
to pay for the securities, the Portfolio could suffer a loss.
RESTRICTED AND ILLIQUID SECURITIES
The Portfolio may invest in a limited amount of restricted securities.
Restricted securities are securities that are thinly traded or whose resale is
restricted by federal securities laws. Restricted securities are any securities
in which the Portfolio may invest pursuant to its investment objective and
policies but which are subject to restrictions on resale under federal
securities laws.
FIXED-INCOME SECURITIES
The fixed-income securities in which the Portfolio 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 Portfolio assets invested in unrated or lower-grade securities, while
intended to increase the yield produced by those assets, will also 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 Portfolio 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
Portfolio is not required to dispose of debt securities whose ratings are
downgraded below these ratings subsequent to the Portfolio's purchase of the
securities. Relying in part on ratings assigned by credit agencies in making
investments will not protect the Portfolio from the risk that the fixed-income
securities in which the Portfolio invests will decline in value. Credit ratings
represent evaluations of the safety of principal, 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 Portfolio have more than 5% of their respective total assets
invested in any fixed-income securities that are unrated or rated below
investment grade either at the time of purchase or as a result of a reduction in
rating after purchase.
DEPOSITARY RECEIPTS. The Portfolio 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 and evidence ownership of underlying
securities issued by a foreign corporation. Investments in these types of
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 Portfolio to the extent that the Portfolio is
invested in ADRs 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 Portfolio and that may ultimately be
available for distribution to the Portfolio's and Fund's shareholders.
DERIVATIVES
BUYING CALL AND PUT OPTIONS. The Portfolio may purchase call options. Such
transactions may be entered into in order to limit the risk of a substantial
increase in the market price of the security that the Portfolio intends to
purchase. Prior to its expiration, a call option may be sold in a closing sale
transaction. Any profit or loss from the sale will depend on whether the amount
received is more or less than the premium paid for the call option plus the
related transaction cost.
The Portfolio may purchase put options. By buying a put, the Portfolio has the
right to sell the security at the exercise price, thus limiting its risk of risk
of loss through a decline in the market value of the security until the put
expires. The amount of any appreciation in the value of the underlying security
will be partially offset by the amount of the premium paid for the put option
and any related transaction cost. Prior to its expiration, a put option may be
sold in a closing sale transaction and any profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the put option plus the related transaction costs.
WRITING (SELLING) CALL AND PUT OPTIONS. The Portfolio may write covered options
on equity and debt securities and indices. This means that, in the case of call
options, so long as the Portfolio is obligated as the writer of a call option,
it will own the underlying security subject to the option and, in the case of
put options, it will, through its custodian, deposit and maintain either cash or
securities with a market value equal to or greater than the exercise price of
the option.
Covered call options written by the Portfolio give the holder the right to buy
the underlying securities from the Portfolio as a stated exercise price. A call
option written by the Portfolio is "covered" if the Portfolio own the underlying
security that is subject to the call or has an absolute and immediate right to
acquire that security without additional cash consideration (or for additional
cash consideration held in a segregated account by its custodian bank) upon
conversion or exchange of other securities held in its portfolio. A call option
is also covered if the Portfolio hold a call on the same security and in the
same principal amount as the call written where the exercise price of the call
held (a) is equal to or less than the exercise price of the call written or (b)
is greater than the exercise price of the call written if the difference is
maintained by the Portfolio in cash and high grade debt securities in a
segregated account with its custodian bank. The Portfolio may purchase
securities, which may be covered with call options solely on the basis of
considerations consistent with the investment objectives and policies of the
Portfolio. The Portfolio's turnover may increase through the exercise of a call
option; this will generally occur if the market value of a "covered" security
increases and the Fund has not entered into a closing purchase transaction.
As a writer of an option, the Portfolio receives a premium less a commission,
and in exchange foregoes the opportunity to profit from any increase in the
market value of the security exceeding the call option price. The premium serves
to mitigate the effect of any depreciation in the market value of the security.
The premium paid by the buyer of an option will reflect, among other things, the
relationship of the exercise price to the market price, the volatility of the
underlying security, the remaining term of the option, the existing supply and
demand, and the interest rates.
The writer of a call option may have no control over when the underlying
securities must be sold because the writer may be assigned an exercise notice at
any time prior to the termination of the obligation. Exercise of a call option
by the purchaser will cause the Portfolio to forego future appreciation of the
securities covered by the option. Whether or not an option expires unexercised,
the writer retains the amount of the premium. This amount may, in the case of a
covered call option, be offset by a decline in the market value of the
underlying security during the option period. If a call option is exercised, the
writer experiences a profit or loss from the sale of the underlying security.
Thus during the option period, the writer of a call option gives up the
opportunity for appreciation in the market value of the underlying security or
currency above the exercise price. It retains the risk of the loss should the
price of the underlying security or foreign currency decline. Writing call
options also involves risks relating to the Portfolio's ability to close out the
option it has written.
The Portfolio may write exchange-traded call options on its securities. Call
options may be written on portfolio securities indices, or foreign currencies.
With respect to securities and foreign currencies, the Portfolio may write call
and put options on an exchange or over-the-counter. Call options on portfolio
securities will be covered since the Portfolio will own the underlying
securities. Call option on securities indices will be written only to hedge in
an economically appropriate way portfolio securities that are not otherwise
hedged with options or financial futures contracts and will be "covered" by
identifying the specific portfolio securities being hedged. Options on foreign
currencies will be covered by securities denominated in that currency. Options
on securities indices will be covered by securities that substantially
replicated the movement of the index.
A put option on a security, security index, or foreign currency gives the
purchaser of the option, in return for the premium paid to the writer (seller),
the right to sell the underlying security, index, or foreign currency at the
exercise price at any time during the option period. When the Portfolio writes a
secured put option, it will gain a profit in the amount of the premium, less a
commission, so long as the price of the underlying security remains above the
exercise price. However, the Portfolio remains obligated to purchase the
underlying security from the buyer of the put option (usually in the event the
price of the security falls bellows the exercise price) at any time during the
option period. If the price of the underlying security falls below the exercise
price, the Portfolio may realize a loss in the amount of the difference between
the exercise price and the sale price of the security, less the premium
received. Upon exercise by the purchaser, the writer of a put option has the
obligation to purchase the underlying security or foreign currency at the
exercise price. A put option on a securities index is similar to a put option on
an individual security, except that the value of the option depends on the
weighted value of the group of securities comprising the index and all
settlements are made in cash.
During the option period, the writer of a put option has assumed the risk that
the price of the underlying security or foreign currency will decline below the
exercise price. However, the writer of the put option has retained the
opportunity for an appreciated above the exercise price should the market price
of the underlying security or foreign currency increase. Writing put options
also involves risks relating to the Portfolio's ability to close out the option
that it has written.
The writer of an option who wishes to terminate his or her obligation may effect
a "closing purchase transaction" by buying an option of the same series as the
option previously written. The effect of the purchase is that the clearing
corporation will cancel the writer's position. However, a writer may not effect
a closing purchase transaction after being notified of the exercise of an
option. There is also no guarantee that the Portfolio will be able to effect a
closing purchase transaction for the options it has written.
Effecting a closing purchase transaction in the case of a written call option
will permit the Portfolio to write another call option on the underlying
security with a different exercise price, expiration date, or both. Effecting a
closing purchase transaction will also permit the Portfolio to use cash or
proceeds from the investments. If the Portfolio desires to sell a particular
security from its portfolio on which it has written a call option, it will
effect a closing purchase transaction before or at the same time as the sale of
the security.
The Portfolio will realize a profit from a closing purchase transaction if the
price of the transaction is less than the premium received from writing the
option. Likewise, the Portfolio will realize a loss from a closing purchase
transaction if the price of the transaction is more than the premium received
from writing the option. Because increases in the market price of a call option
will generally reflect increases in the market price of the underlying security,
any loss resulting from the repurchase of a call option is likely to be offset
in whole or in part by appreciation of the underlying security owned by the
Portfolio.
WRITING OVER-THE-COUNTER ("OTC") OPTIONS. The Portfolio may engage in options
transactions that trade on the OTC market to the same extent that it intends to
engage in exchange traded options. Just as with exchange traded options, OTC
options give the holder the right to buy an underlying security from, or sell an
underlying security to, an option writer at a stated exercise price. However,
OTC options differ from exchange traded options in certain material respects.
OTC options are arranged directly with dealers and not, as is the case with
exchange traded options, through a clearing corporation. Thus, there is a risk
of non-performance by the dealer. Because there is no exchange, pricing is
typically done by reference to information obtained from market makers. Since
OTC options are available for a greater variety of securities and in a wider
range of expiration dates and exercise prices, the writer of an OTC option is
paid the premium in advance by the dealer.
A writer or purchaser of a put or call option can terminate it voluntarily only
by entering into a closing transaction. There can be no assurance that a
continuously liquid secondary market will exist for any particular option at any
specific time. Consequently, the Portfolio may be able to realize the value of
an OTC option it has purchased only by exercising it or entering into a closing
sale transaction with the dealer that issued it. Similarly, when the Portfolio
writes an OTC option, it generally can close out that option prior to its
expiration only by entering into a closing purchase transaction with the dealer
to which it originally wrote to option. If a covered call option writer cannot
effect a closing transaction, it cannot sell the underlying security or foreign
currency until the option expires or the option is exercised. Therefore, the
writer of a covered OTC call option may not be able to sell an underlying
security even though it might otherwise be advantageous to do so. Likewise, the
writer of a secured OTC put option may be unable to sell the securities pledged
to secure the put for other investment purposes while it is obligated as a put
writer. Similarly, a purchaser of an OTC put or call option might also find it
difficult to terminate its position on a timely basis in the absence of a
secondary market.
The staff of the Securities and Exchange Commission has often taken the position
that purchased OTC options and the assets used to "cover" written OTC options
are illiquid securities. The Portfolio will adopt procedures for engaging in OTC
options transactions for the purpose of reducing any potential adverse effect of
such transactions on the liquidity of the Portfolio.
FUTURES CONTRACTS. The Portfolio may buy and sell stock index futures contracts
traded on domestic stock exchanges to hedge the value of its portfolio against
changes in market conditions. A stock index futures contract is an agreement
between two parties to take or make delivery of an amount of cash equal to a
specified dollar amount, times the difference between the stock index value at
the close of the last trading day of the contract and the price at which the
futures contract is originally struck. A stock index futures contract does not
involve the physical delivery of the underlying stocks in the index. Although
stock index futures contracts call for the actual taking or delivery or cash, in
most cases the Portfolio expects to liquidate its stock index futures positions
through offsetting transactions, which may result in a gain or a loss, before
cash settlement is required.
The Portfolio will incur brokerage fees when it purchases and sells stock index
futures contracts, and at the time the Portfolio purchases or sells a stock
index futures contract, it must make a good faith deposit known as the "initial
margin." Thereafter, the Portfolio may need to make subsequent deposits, known
as "variation margin," to reflect changes in the level of the stock index. The
Portfolio may buy or sell a stock index futures contract so long as the sum of
the amount of margin deposits on open positions with respect to all stock index
futures contracts does not exceed 5% of the Portfolio's net assets.
To the extent the Portfolio enters into a stock index futures contract, it will
maintain with its custodian bank (to the extent required by the rules of the
SEC) assets in a segregated account to cover its obligations. Such assets may
consist of cash, cash equivalents, or high quality debt securities from its
portfolio in an amount equal to the difference between the fluctuating market
value of such futures contract and the aggregate value of the initial and
variation margin payments.
RISKS ASSOCIATED WITH OPTIONS AND FUTURES. Although the Portfolio may write
covered call options and purchase and sell stock index futures contracts to
hedge against declines in market value of its portfolio securities, the use of
these instruments involves certain risks. As the writer of covered call options,
the Portfolio receives a premium but loses any opportunity to profit from an
increase in the market price of the underlying securities declines, though the
premium received may partially offset such loss.
Although stock index futures contracts may be useful in hedging against adverse
changes in the value of the Portfolio's investment securities, they are
derivative instruments that are subject to a number of risks. During certain
market conditions, purchases and sales of stock index futures contracts may not
completely offset a decline or rise in the value of the Portfolio's investments.
In the futures markets, it may not always be possible to execute a buy or sell
order at the desired price, or to close out an open position due to market
conditions, limits on open positions and/or daily price fluctuations. Changes in
the market value of the Portfolio's investment securities may differ
substantially from the changes anticipated by the Portfolio when it established
its hedged positions, and unanticipated price movements in a futures contract
may result in a loss substantially greater than the Portfolio's initial
investment in such a contract.
Successful use of futures contracts depends upon the sub-adviser's ability to
correctly predict movements in the securities markets generally or of a
particular segment of a securities market. No assurance can be given that the
sub-adviser's judgment in this respect will be correct.
The CFTC and the various exchanges have established limits referred to as
"speculative position limits" on the maximum net long or net short position that
any person may hold or control in a particular futures contract. Trading limits
are imposed on the number of contracts that any person may trade on a particular
trading day. An exchange may order the liquidation of positions found to be in
violation of these limits and it may impose sanctions or restrictions. These
trading and positions limits will not have an adverse impact on the Portfolio's
strategies for hedging its securities.
TEMPORARY INVESTMENTS
--------------------------------------------------------------------------------
In order to have funds available for redemption and investment opportunities,
the Portfolio may also hold a portion of their assets in cash or U.S. short-term
money market instruments. Certificates of deposit purchased by the Portfolio
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 Portfolio will
be guaranteed by U.S. or foreign banks having total assets at the time of
purchase in excess of $1 billion. The Portfolio 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 Portfolio 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, both the
Fund and the Portfolio must distribute substantially all of their net income to
shareholders generally on an annual basis. Thus, the Portfolio may have to
dispose of portfolio securities under disadvantageous circumstances to generate
cash or borrow cash in order to satisfy the distribution requirement. The
Portfolio 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.
The Fund and the Portfolio have not operated long enough to calculate a
portfolio turnover rate for one fiscal year.
MANAGEMENT OF THE FUND AND THE PORTFOLIO
--------------------------------------------------------------------------------
BOARD OF DIRECTORS/BOARD OF TRUSTEES
The management and affairs of the Fund and the Portfolio is supervised by the
Board of Directors of the Company and the Board of Trustees of the Trust,
respectively. The Board consists of the same eight individuals, five of whom are
not "interested persons" of the Company or the Trust 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. The Trustees are fiduciaries for the
Portfolio's shareholders and are governed by the laws of the State of Delaware
in this regard. Each Board establishes policies for the operation of the Fund
and the Portfolio and appoints the officers who conduct the daily business of
the Fund and the Portfolio. Officers and Directors/Trustees of the Company and
the Trust are listed below with their addresses, present positions with the
Company and Trust and principal occupations over at least the last five years.
<TABLE>
<CAPTION>
----------------------------------- --------- ------------------------- ------------------------------------------
NAME AND ADDRESS AGE POSITION WITH THE PRINCIPAL OCCUPATION
COMPANY AND TRUST DURING THE PAST FIVE YEARS
----------------------------------- --------- ------------------------- ------------------------------------------
<S> <C> <C>
*Steven R. Samson 46 President & Chairman of President and CEO, Kinetics Asset
25 Holly Place the Boards Management, Inc. (1999 to Present);
Briarcliff, NY 10510 President, The Internet Fund, Inc. (1999
to Present); Managing Director, Chase
Manhattan Bank (1993 to 1999).
----------------------------------- --------- ------------------------- ------------------------------------------
*Kathleen Campbell 35 Director/Trustee Attorney, Campbell and Campbell,
68 East Hartsdale Avenue Counselors-at-Law (1995 to Present).
Hartsdale, NY 10530
----------------------------------- --------- ------------------------- ------------------------------------------
*Murray Stahl 47 Director/Trustee President, Horizon Asset Management, an
30 Haights Cross Road investment adviser (1994 to Present).
Chappaqua, NY 10514
----------------------------------- --------- ------------------------- ------------------------------------------
Steven T. Russell 37 Independent Attorney and Counselor at Law, Steven
146 Fairview Avenue Director/Independent Russell Law Firm (1994 to Present);
Bayport, NY 11705 Trustee Professor of Business Law, Suffolk
County Community College (1997 to
Present).
----------------------------------- --------- ------------------------- ------------------------------------------
Douglas Cohen, C.P.A. 37 Independent Wagner, Awerma & Strinberg, LLP
6 Saywood Lane Director/Independent Certified Public Accountant (1997 to
Stonybrook, NY 11790 Trustee present); Leon D. Alpern & Co. (1985 to
1997)
----------------------------------- --------- ------------------------- ------------------------------------------
William J. Graham 38 Independent Attorney, Bracken & Margolin, LLP (1997
856 Hampshire Road Director/Independent to Present).
Bayshore, NY 11706 Trustee Gabor & Gabor (1995 to 1997)
----------------------------------- --------- ------------------------- ------------------------------------------
Joseph E. Breslin 46 Independent Senior Vice President, Marketing &
54 Woodland Drive Director/Independent Sales, IBJ Whitehall Financial Group, a
Rye Brook, NY 10573 Trustee financial services company (1999 to
Present); formerly President, J.E.
Breslin & Co., an investment management
consulting firm (1994 to 1999).
----------------------------------- --------- ------------------------- ------------------------------------------
John J. Sullivan 69 Independent Retired; Senior Advisor, Long Term
31 Hemlock Drive Director/Independent Credit Bank of Japan, Ltd.; Executive
Sleepy Hollow, NY 10591 Trustee Vice President, LTCB Trust Company.
----------------------------------- --------- ------------------------- ------------------------------------------
Lee W. Schultheis 44 Vice President & Managing Director & COO of Kinetics
54 Kelsey Ridge Road Treasurer of each of Asset Management (1999 to Present);
Freeport, ME 04032 the Company and the President & Director of Business.
Trust Development, Vista Fund Distributors,
Inc. (1995 to 1999); Managing Director,
Forum Financial Group, a mutual fund
services company.
----------------------------------- --------- ------------------------- ------------------------------------------
</TABLE>
* "Interested persons" as defined in the 1940 Act.
COMPENSATION
For their service as Directors of the Company and Trustees of the Trust, the
Independent Directors/Independent Trustees receive an aggregate fee of $15,000
per year and $1,000 per meeting attended, as well as reimbursement for expenses
incurred in connection with attendance at such meetings. In addition, each
committee chairman of the Company and the Trust (such as the Audit Committee or
Pricing Committee) receives an additional fee of $5,000 per year for his service
as chairman. The "interested persons" who serve as Directors of the Company or
Trustees of the Trust receive no compensation for their service as Directors or
Trustees. None of the executive officers receive compensation from the Fund or
the Portfolio. The following tables provide compensation information for the
Directors/Trustees for the year-ended December 31, 1999.
<TABLE>
<CAPTION>
KINETICS MUTUAL FUNDS, INC.
COMPENSATION TABLE
---------------------------- ----------------- ----------------------- ---------------------- ------------------------
NAME AND POSITION AGGREGATE PENSION OR RETIREMENT ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION BENEFITS ACCRUED AS BENEFITS UPON FROM FUND AND FUND
FROM FUNDS PART OF FUND EXPENSES RETIREMENT COMPLEX PAID TO
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
Independent Director
Douglas Cohen, CPA None None None $6,094
Independent Director
William J. Graham None None None $5,500
Independent Director
Joseph E. Breslin None None None $4,500
Independent Director
John J. Sullivan None None None $5,500
Independent Director
---------------------------- ----------------- ----------------------- ---------------------- ------------------------
</TABLE>
* "Interested person" as defined under the 1940 Act.
** Includes compensation paid by Kinetics Portfolios Trust.
*** Murray Stahl became an "interested person" of the Fund (as defined under the
1940 Act) as of December 15, 1999. Previous to becoming an interested person,
Mr. Stahl received $3,844 as total compensation from the Fund and Fund complex
for being an independent director.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
--------------------------------------------------------------------------------
The following table provides the name and address of any person who owns of
record or beneficially 5% or more of the outstanding shares of the Fund as of
___________, 2000 (a "principal shareholder"). A control person is one who owns
beneficially or through controlled companies more than 25% of the voting
securities of a company or acknowledges the existence of control. Principal
holders are persons that beneficially own 5% or more of a Fund's outstanding
shares. As of the date of this SAI, there are no control persons or principal
holders of the Fund.
MANAGEMENT OWNERSHIP
As of ___________, 2000, the officers and/or Directors of the Fund as a group
own less than 1% of the outstanding shares of the Fund.
INVESTMENT ADVISERS
--------------------------------------------------------------------------------
Kinetics Asset Management, Inc. ("Kinetics" or the "Adviser") is a New York
corporation that serves as the investment adviser to the Portfolios. 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 Chief Operating Officer of Kinetics and has more than
20 years experience in the mutual funds and financial services industries.
On April 25, 2000, the Board of the Trustees of the Trust, on behalf of the
Portfolio, 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 Trustees of the
Trust or by the vote of the holders of a majority of the outstanding voting
securities of the Portfolio. In either event, it must also be approved by a
majority of the trustees of the Portfolio 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 Board of
Trustees. The Agreement may be terminated at any time, without the payment of
any penalty, by the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio. Ultimate decisions as to the
investment policy and as to individual purchases and sales of securities are
made by the Portfolio's officers and the Trustees.
Under the Agreement, Kinetics furnishes investment advice to the Portfolio by
continuously reviewing the portfolio and recommending to the Portfolio to what
extent, securities should be purchased or disposed. Pursuant to the Agreement,
the Adviser:
(1) renders research, statistical and advisory services to the Portfolio;
(2) makes specific recommendations based on the Portfolios' investment
requirements;
(3) pays the salaries of those of the Portfolio's employees who may be officers
or directors or employees of the investment adviser.
ADVISORY FEES
For the above 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 ("NAV") 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 or by the Portfolio or by the Fund and the Portfolio
jointly, as more fully described below. The Fund pay 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.
SHAREHOLDER SERVICING
--------------------------------------------------------------------------------
The Adviser provides shareholder services to the Fund and receives a shareholder
servicing fee from the Fund 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 and the Portfolio. Under an
Administrative Services Agreement with the Fund, Kinetics will be entitled to
receive an annual administration fee equal to 0.05% of the Fund's average daily
net assets and 0.10% of the Portfolio's average daily net assets of which
Kinetics 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 Portfolios 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 Portfolio'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 Portfolio,
|X| assist clients in changing dividend options,
|X| account designations, and addresses, and
|X| providing such other services as the Portfolio may reasonably request.
DISTRIBUTOR
--------------------------------------------------------------------------------
Kinetics Funds Distributor, Inc. ("KFDI") 1311 Mamaroneck Avenue, Suite 130,
White Plains, New York 10605 is the distributor of the Fund's shares. KFDI is a
registered broker-dealer and member of the National Association of Securities
Dealers, Inc.
CUSTODIAN
--------------------------------------------------------------------------------
Firstar Bank, N.A. ("Firstar Bank") is custodian for the securities and cash of
the Portfolio. Under a Custody Agreement, Firstar Bank holds the Portfolio's
assets in safekeeping and keeps all necessary records and documents relating to
its duties. Firstar Bank receives an annual fee equal to 0.010% of the
Portfolio's average daily net assets with a minimum annual fee of $3,000.
Firstar Bank has also serves as custodian of the shares of beneficial interest
of the Portfolio held by the Fund pursuant to a Sub-Custody Agreement under
which Firstar Bank is responsible for the safekeeping of the Fund's shares of
beneficial interest and all necessary records and documents relating to such
shares.
VALUATION OF SHARES
--------------------------------------------------------------------------------
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. Eastern Time) 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 Portfolio'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
Trustees. The Portfolio may use independent pricing services to assist in
calculating the NAV of the Portfolio's shares.
The Portfolio'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 Trustees of the Portfolio.
PURCHASING SHARES
--------------------------------------------------------------------------------
Shares of the Fund are sold in a continuous offering and may be purchased on any
business day though authorized investment dealers or directly from the Fund.
Except for the Fund itself, 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 programs 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. Eastern
Time 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 Time.
REDEMPTION OF SHARES
--------------------------------------------------------------------------------
To redeem shares, shareholders may send a written request in "good order" to:
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 their 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 their transfer agent reserve the right
to amend these standards at any time without notice.
BROKERAGE
--------------------------------------------------------------------------------
The Portfolio's assets are invested by the Adviser in a manner consistent with
its investment objective, strategies, policies and restrictions and with any
instructions the Board of Trustees may issue from time to time. Within this
framework, the Adviser is responsible for making all determinations as to the
purchase and sale of portfolio securities and for taking all steps necessary to
implement securities transactions on behalf of the Portfolio.
Transactions on U.S. stock exchanges, commodities markets and futures markets
and other agency transactions may involve the payment by the Adviser on behalf
of the Portfolio of negotiated brokerage commissions. Such commissions vary
among different brokers. A particular broker may charge different commissions
according to such factors as the difficulty and size of the transaction.
Transactions in foreign investments often involve the payment of fixed brokerage
commissions, which may be higher than those in the United States. There is
generally no stated commission in the case of securities traded in the
over-the-counter markets, but the price paid by the Adviser usually includes an
undisclosed dealer commission or mark-up. In underwritten offerings, the price
paid by the Adviser on behalf of the Portfolio includes a disclosed, fixed
commission or discount retained by the underwriter or dealer.
U.S. Government securities generally are traded in the over-the-counter market
through broker-dealers. A broker-dealer is a securities firm or bank that makes
a market for securities by offering to buy at one price and sell at a slightly
higher price. The difference between the prices is known as a spread.
In placing orders for the purchase and sale of portfolio securities for the
Portfolio, the Adviser seeks to obtain the best price and execution, taking into
account such factors as price, size of order, difficulty and risk of execution
and operational facilities of the firm involved. For securities traded in the
over-the-counter markets, the Adviser deals directly with the dealers who make
markets in these securities unless better prices and execution are available
elsewhere. The Adviser negotiates commission rates with brokers based on the
quality and quantity of services provided in light of generally prevailing
rates, and while the Adviser generally seeks reasonably competitive commission
rates, the Portfolio does not necessarily pay the lowest commissions available.
The Board of Trustees periodically reviews the commission rates and allocation
of orders.
When consistent with the objectives of best price and execution, business may be
placed with broker-dealers who furnish investment research or services to the
Adviser. Such research or services include advice, both orally and in writing,
as to the value of securities; the advisability of investing in, purchasing or
selling securities; and the availability of securities, or purchasers or sellers
of securities; as well as analyses and reports concerning issues, industries,
securities, economic factors and trends, portfolio strategy and the performance
of accounts. To the extent portfolio transactions are effected with
broker-dealers who furnish research services to the Adviser, the Adviser
receives a benefit, not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Portfolio from these transactions.
The Adviser believes that most research services obtained by it generally
benefit several or all of the investment companies and private accounts which it
manages, as opposed to solely benefiting one specific managed fund or account.
The Trust, on behalf of the Portfolio, may also enter into arrangements,
commonly referred to as "broker/service arrangements" with broker-dealers
pursuant to which a broker-dealer agrees to pay the cost of certain products or
services provided to the Portfolio in exchange for fund brokerage. Under a
typical brokerage/service arrangement, a broker agrees to pay a portion the
Portfolio's custodian, administrative or transfer agency fees, etc., and, in
exchange, the Portfolio agrees to direct a minimum amount of brokerage to the
broker. The Adviser, on behalf of the Trust, usually negotiates the terms of the
contract with the service provider, which is paid directly by the broker.
The same security may be suitable for the Portfolio, another portfolio series of
the Trust or other private accounts managed by the Adviser. If and when the
Portfolio and two or more accounts simultaneously purchase or sell the same
security, the transactions will be allocated as to price and amount in
accordance with arrangements equitable to the Portfolio and the accounts. The
simultaneous purchase or sale of the same securities by the Portfolio and other
accounts may have a detrimental effect on the Portfolio, as this may affect the
price paid or received by the Portfolio or the size of the position obtainable
or able to be sold by the Portfolio.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, Inc. and subject to seeking the most favorable price and execution
available and such other policies as the Trustees may determine, the Adviser may
consider sales of shares of the Portfolio as a factor in the selection of
broker-dealers to execute portfolio transactions for the Portfolio.
TAXES
--------------------------------------------------------------------------------
Under provisions of Sub-Chapter M of the Internal Revenue Code of 1986 as
amended, the Fund, by paying out substantially all of its investment income and
realized capital gains, intends to be relieved of federal income tax on the
amounts distributed to shareholders. To qualify as a "regulated investment
company" or "RIC" under Sub-Chapter M, the Fund (which is treated separately
from each other series of the Company for these purposes), must distribute to
its shareholders for each taxable year at least 90% of the Fund's taxable income
(consisting generally of net investment income and net short-term capital gain)
and must meet several additional requirements. Among these requirements are the
following:
(a) the Fund must derive at least 90% of its gross income each taxable
year from dividends, interest, payments with respect to securities
loans, gains from the disposition of foreign currencies, interest
and gains from securities transactions or other income;
(b) the Fund must derive less than 30% of its gross income each
taxable year from the sale or other disposition of securities that
were held for less than three months; and
(c) at the close of each quarter, (i) at least 50% of the value of the
Fund's total assets must be represented by cash and cash items,
U.S. Government securities, securities of other RICs and other
securities limited in respect of any one issuer, to an amount that
does not exceed 5% of the value of the Fund's total assets and
that does not represent more than 10% of the issuer's outstanding
voting securities, and (ii) not more than 25% of the value of its
total assets may be invested in securities (other than U.S.
government securities) of any one issuer. The Fund (as an
investor in the Portfolio) will be deemed to own a proportionate
share of the Portfolio's assets and to earn a proportionate
share of the Portfolio's income, for purposes of determining
whether the Fund satisfies all the requirements described above to
qualify as a RIC.
The Fund will be subject to a nondeductible 4% excise tax to the extent that it
fails to distribute by the end of the calendar year substantially all of its
ordinary income for that year and capital gain net income for the one year
period ending on October 31 of that year, plus certain other amounts.
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 net investment income
distributed 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 (that
may include dividends, capital gains, distributions, and redemptions) paid to
shareholders who have not complied with IRS regulations. In order to avoid this
withholding requirement, you must certify on a W-9 tax form supplied by the Fund
that your Social Security or Taxpayer Identification Number provided is correct
and that you are not currently subject to back-up withholding, or that you are
exempt from back-up withholding.
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
TOTAL RETURN
Average annual total return quotations used in the Fund's advertising and
promotional materials are calculated according to the following formula:
P(1+T)n = ERV
where P equals a hypothetical initial payment of $1,000; T equals average annual
total return; n equals the number of years; and ERV equals the ending redeemable
value at the end of the period of a hypothetical $1,000 payment made at the
beginning of the period.
Under the foregoing formula, the time periods used in advertising will be based
on rolling calendar quarters, updated to the last day of the most recent quarter
prior to submission of the advertising for publication. Average annual total
return, or "T" in the above formula, is computed by finding the average annual
compounded rates of return over the period that would equate the initial amount
invested to the ending redeemable value. Average annual total return assumes the
reinvestment of all dividends and distributions.
Because the Fund is new, no performance history is provided in this SAI.
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 an 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 NASDAQ Composite - The NASDAQ Composite Index is a broad-based
capitalization - weighted index of all NASDAQ stocks.
INDEPENDENT AUDITORS
--------------------------------------------------------------------------------
PricewaterhouseCoopers LLP, 100 East Wisconsin Avenue, Suite 1500, Milwaukee,
Wisconsin 53202, serves as the Fund's independent auditor, whose services
include examination of the Fund's financial statements and the performance of
other related audit and tax services.
FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
Because the Fund is new, there are no Financial Statements available at this
time.
APPENDIX
--------------------------------------------------------------------------------
STANDARD & POOR'S ("S&P") CORPORATE BOND RATING DEFINITIONS
AAA-Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA-Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher-rated issues only in small degree.
A-Debt rated "A" has a strong capacity to pay interest and repay principal,
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
BBB-Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
BB, B, CCC, CC-Debt rated "BB", "B", "CCC", and "CC" is regarded, on balance, as
predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "CC" the highest degree of speculation. While
such debt will likely have some quality and protective characteristics, these
are outweighed by large uncertainties of major risk exposures to adverse
conditions.
CI-The rating "CI" is reversed for income bonds on which no interest is being
paid.
D-Debt rated "D" is in default, and payment of interest and/or repayment of
principal is in arrears.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
Aaa-Bonds which are rated "Aaa" are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa-Bonds which are rated "Aa" are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present that
make the long-term risks appear somewhat larger than in Aaa securities.
A-Bonds which are rated "A" possess many favorable investment attributes and are
to be considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the near future.
Baa-Bonds which are rated "Baa" are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and, in
fact, have speculative characteristics as well.
Ba-Bonds which are "Ba" are judged to have speculative elements; their future
cannot be considered well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
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.
KINETICS MUTUAL FUNDS, INC.
PART C
OTHER INFORMATION
ITEM 23. EXHIBITS
(a) Amended and Restated Articles of Incorporation(1)
(b) Amended and Restated By-Laws(1)
(c) Instruments Defining Rights of Security Holders. Incorporated by
reference to Articles of Incorporation and Bylaws.
(d) Investment Advisory Agreements between Registrant and Kinetics Asset
Management, Inc.(1)
(e) Underwriting Contracts(2)
(f) Bonus or Profit Sharing Contracts. Not applicable.
(g) Custodian Contract between Registrant and Firstar Bank
Milwaukee, N.A.(1)
(h) Other Material Contracts
(1) Administrative Services Agreement between Registrant and
Kinetics Asset Management, Inc.(1)
(2) Fund Accounting Servicing Agreement between Registrant and
Firstar Mutual Fund Services, LLC(1)
(3) Transfer Agent Agreement between Registrant and Firstar
Mutual Fund Services, LLC(1)
(4) Shareholder Servicing Agreement between Registrant and
Kinetics Asset Management, Inc.(1)
(5) Agreement of the Joint Insureds between Registrant and The
Internet Fund, Inc.
(i) Legal Opinion(1)
(j) Other Opinions.
(1) Consent of Auditors - To be filed by amendment.
(k) Omitted Financial Statements. Not applicable.
(l) Initial Capital Understanding(1)
(m) Rule 12b-1 Plan. Not applicable.
(n) Financial Data Schedules - Not applicable.
(o) Rule 18f-3 Plan. Not applicable.
(1) Filed September 7, 1999 with Pre-effective Amendment No. 3 to the
Registration Statement.
(2) Filed June 12, 2000 with Post-Effective Amendment No. 5 to the Registration
Statement.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH
REGISTRANT
Registrant is not controlled by or under common control with
any person.
ITEM 25. INDEMNIFICATION
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant, the Registrant has
been advised that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER:
Besides serving as investment adviser to the Fund, the Adviser
is not currently (and has not during the past two years)
engaged in any other business, profession, vocation or
employment of a substantial nature. Information regarding the
business, vocation or employment of a substantial nature of
the Adviser and its officers is incorporated by reference to
the information contained in Part B of this Registration
Statement.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) As of the date of this filing, Kinetics Funds Distributor,
Inc. ("KFDI"), Distributor for shares of the Registrant, also
serves as the private placement agent for Kinetics Portfolios
Trust.
(b) To the best of Registrant's knowledge, the directors and
executive officers of KFDI are as follows:
<TABLE>
<CAPTION>
NAME AND PRINCIPAL POSITION AND OFFICES WITH KINETICS POSITIONS AND OFFICES WITH
BUSINESS ADDRESS FUNDS DISTRIBUTOR, INC. REGISTRANT
--------------------------------------- --------------------------------------- ----------------------------
<S> <C> <C>
Lee W. Schultheis President Vice President, Treasurer
1311 Mamaroneck Avenue,
White Plains, New York 10605
--------------------------------------- --------------------------------------- ----------------------------
</TABLE>
(c) None.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at the
following locations:
RECORDS RELATING TO: ARE LOCATED AT:
-------------------- ---------------
(1) Registrant's fund accounting Firstar Mutual Funds Services, LLC
servicing agent, sub-administrator and 615 East Michigan Street
transfer Milwaukee, Wisconsin 53202
(2) Registrant's investment adviser, Kinetics Asset Management, Inc
administrator 1311 Mamaroneck Avenue
White Plains, NY 10605
(3) Registrant's custodian Firstar Bank, N.A.
425 E. Walnut Street
Cincinnati, OH 45202
ITEM 29. MANAGEMENT SERVICES:
Not applicable.
ITEM 30. UNDERTAKINGS:
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, KINETICS MUTUAL FUNDS, INC.,
certifies that it meets all of the requirements for effectiveness of this
Amendment to its Registration Statement the Securities Act of 1933 and has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of White Plains and
State of New York, on the 29th day of September, 2000.
KINETICS MUTUAL FUNDS, INC.
/S/STEVEN R. SAMSON
-------------------------------
Steven R. Samson, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following persons
representing all of the members of the Board of Directors on September 29, 2000.
NAME TITLE
/S/STEVEN R. SAMSON President, Chairman of the Board
---------------------------
Steven R. Samson
*/S/KATHLEEN CAMPBELL Director
---------------------------
Kathleen Campbell
*/S/DOUGLAS COHEN Director
---------------------------
Douglas Cohen
*/S/ WILLIAM J. GRAHAM Director
---------------------------
William J. Graham
*/S/STEVEN T. RUSSELL Director
---------------------------
Steven T. Russell
*/S/MURRAY STAHL Director
--------------------------
Murray Stahl
*/S/JOSEPH E. BRESLIN Director
--------------------------
Joseph E. Breslin
*/S/JOHN J. SULLIVAN Director
---------------------------
John J. Sullivan
* By /s/ Steven R. Samson
--------------------
Steven R. Samson
Attorney-in-fact
Pursuant to the requirements of the Investment Company Act of 1940, the
undersigned hereby signs this Amendment to the Registration Statement of
Kinetics Mutual Funds, Inc. on behalf of the Board of Trustees of Kinetics
Portfolios Trust in the City of White Plains and State of New York, on the 29th
day of September, 2000.
KINETICS PORTFOLIOS TRUST
/S/STEVEN R.SAMSON
----------------------------
Steven R. Samson,
President and Chairman of the Board
