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Dear Fellow Shareholders,

We are pleased to present the Kinetics Mutual Funds ("Funds") Report for the six-month period ended June 30, 2016. The mid-year returns of various equity market indexes would suggest another year of gradual, modest advances in asset prices against a backdrop of similarly modest economic data. In reality, the path taken to arrive at the mid-year returns has been far more complex and volatile, with large divergences across sectors and asset classes. The S&P 500 Index declined over 10.5% to begin the year, while the Russell 2000 Index declined over 16%. These indexes subsequently rose over 14% and 20%, respectively, off their low levels through the end of June. This corresponded with the yield on the 10-year U.S. Treasury Bond declining from 2.30% on January 1st, to 1.47% on June 30th. In response to the declining interest rate environment, income oriented industries within the S&P 500 Index drove the index higher, with Utilities increasing 23.4%, Telecom companies rising 24.8%, Consumer Staples companies increasing 10.5% and Real Estate Investment Trusts rising 11.2%.

It is apparent that investors have bid up income generating assets in response to declining interest rates. However, this largely ignores the fact that rates have fallen as a result of economic weakness, with Federal Open Market Committee estimates for 2016 and 2017 GDP growth declining from 2.4% to 2.0%, and from 2.2% to 2.0% since the beginning of the year. While lower rates in isolation should increase financial asset values, the offsetting lower future cash flows should have a commensurate impact on valuations. This concept appears lost in the current marketplace, with yield seeking investors accepting considerable capital impairment risk in exchange for dividends ranging from 2%-3%. There is an asymmetry favoring downside risk relative to profit expectations that is not appealing to long-term value investors such as ourselves.

We are far more concerned with the implications of a weaker economy than we are with the relative value of assets due to declining interest rates. Two years ago the consensus 2016 earnings estimate for S&P 500 Index earnings was nearly $140 per share; it now stands at $120— nearly 15% lower. However, the S&P 500 Index has returned nearly 12% during the last two years ended June 30, 2016, which equates to valuation multiple expansion of approximately

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30%. Corporations have certainly not increased their intrinsic value over this time, and with rates currently pressing all time low levels (as reflected by the 10-year Treasury Bond yield), catalysts for further gains appear lacking.

The Funds have always been managed with a contrarian tilt, reflecting our belief that original thinking often unearths investment opportunities with a margin of safety embedded in the purchase price. The importance of unique investment thinking is at least as important now as it has ever been, with exchange traded fund flows and interest rates driving consensus favorite stocks to ever stretched valuations. In the Funds, we seek to find investments that are not contingent on low rates, economic strength or index fund flows to maintain and grow valuations. We believe that we are able to achieve this through our emphasis on fundamental analysis and idiosyncratic business attributes.

Despite the challenging backdrop for fundamental equity investing, the Funds generated satisfactory results during the first half of the year. Over time, we expect and hope for our returns to decouple from the broader markets. The Funds generated returns as follows during the six-month period ended June 30, 2016 (No-Load Class): The Paradigm Fund +4.51%, The Multi-Disciplinary Income Fund +5.75%, The Small Cap Opportunities Fund +6.37%, The Market Opportunities Fund +5.01%, The Internet Fund -3.89%, The Medical Fund -8.33%, The Alternative Income Fund +1.95% and The Global Fund +6.97%. This compares to returns of +3.84% for the S&P 500 Index and +1.23% for the MSCI All Country World Index.

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Dear Fellow Shareholders,

At certain points of the investment cycle, investors face a decision as to whether to conform and follow the consensus, or take a divergent path. Conformity all but guarantees suboptimal investment returns over a reasonably long time period, and while contrarian investing does not guarantee superior returns, it improves an investor's chance of outperforming. However, the question arises as to when it is logical to be contrarian, as opposed to simply being contrarian for the sake of being so. Furthermore, there is usually a temptation to try to time a current but unsustainable trend, hoping that you will have the foresight to reallocate ahead of the eventual reckoning. We believe that this dynamic is currently underway in the form of the indexation and exchange-traded funds ("ETF") trends.

Although various attempts have been made, the ultimate impact of indexation and ETF investing appears to be beyond quantification. However, there is an undeniable impact, as total ETF assets under management have risen from $2 billion in 1996 to $2.1 trillion in 2015, a multiple of over 2,000x. Similarly, the mutual fund industry has expanded from approximately $3.5 trillion in 1996 to over $15.6 trillion in 2015, a multiple of less than 4.5x. While some may cite the current size advantage of mutual funds over ETFs as evidence of the muted impact of indexation, we believe that this fails to incorporate not only indexed mutual funds, but also, more importantly, the net fund flows.

Index domestic equity mutual funds and ETFs received $1.2 trillion in net new cash and reinvested dividends between 2007 and 2015, while actively managed domestic mutual funds have shed over $800 billion over this period. Thus, active managers are net sellers of domestic stocks, while passive index products have been net buyers. The fund flows are likely far more influential on marginal stock prices than are existing assets under management; hence, we believe that this phenomenon has contributed considerably to the underperformance of active managers over the past nine years.

This has undoubtedly created an opportunity for value investors that embrace stocks which are not well represented in indexation strategies, although this course of action continues to be a painful experience, as index constituents have continued to rise with fund flows. However, we believe that we may have reached a tipping point this year, as the net issuance of equity ETFs through the

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first 6 months of the year was $3.5 billion, which compares to $72.7 billion during the same period last year. Perhaps a reversal in fund flow trends is not even a requisite for this dynamic to shift, and merely a slowing or cessation of flows can have a similar result.

In the wake of the global financial crisis, it was easy and perhaps advisable to embrace a broad market based approach to equity allocations. Stocks were quantifiably inexpensive, and the economy was more likely to improve than to deteriorate. However, seven years removed, it is equally obvious that stocks are richly valued, and the economy is more likely to slow than accelerate rapidly. Thus, investors who embraced indexation early in the recovery and have, thus far, reaped substantial gains, must consider whether this is the time to diverge from the consensus and embrace stocks on the other side of the "ETF divide." We argue that this path logically makes sense, given the lower valuations and general lower sensitivity to the economy and fund flows, although this environment has been a trying experience for several years now.

The Kinetics Mutual Funds all maintain a very high active share, which denotes portfolio holdings that do not significantly overlap with holdings in the indexes. This strategy has been swimming upstream for an extended period of time now, and those following the trend into indexation have benefitted. Never ones to follow a temporary trend, we have remained steadfast in our allocations. It appears as though the confluence of fund flow patterns and valuations are poised to finally stall or reverse the passive indexation trend. We believe that our approach continues to make logical sense and are particularly keen to embrace investments with the potential to perform in a manner uncorrelated with the broader markets.

Shareholders can continue to access additional information from our website, www.kineticsfunds.com. This website provides a broad array of information, including recent portfolio holdings, quarterly investment commentaries, conference call transcripts, newsflashes, recent performance data, and online access to account information.

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Kinetics offers the following funds to investors:

The Paradigm Fund focuses on companies that we believe are valued attractively and currently have, or are expected to soon have, sustainable high business returns. The Fund has produced attractive risk adjusted returns since its inception, while maintaining amongst the lowest turnover rates in the industry. The Paradigm Fund is Kinetics' flagship fund.

The Multi-Disciplinary Income Fund seeks to utilize stock options and fixed-income investments in order to provide investors with equity-like returns, but with more muted volatility. At times, the options strategies of the Fund may cause the manager to purchase equity securities.

The Small Cap Opportunities Fund focuses on undervalued and special situation small capitalization equities that we believe have the potential for rewarding long-term investment results. The same investment fundamentals employed by The Paradigm Fund are used to identify such opportunities.

The Medical Fund is a sector fund, offering an investment in scientific discovery within the promising field of medical research, particularly in the development of cancer treatments and therapies. As a sector fund, The Medical Fund is likely to have heightened volatility.

The Internet Fund is a sector fund that focuses on companies engaged in the evolution of Internet-related developments. As such, this Fund has been, and is likely to continue to be, quite volatile. The Internet Fund is not designed to be a major component of one's equity exposure. More recently, this Fund has been focusing on content companies, which we believe will be the winners in the next generation of Internet development.

The Global Fund's mandate is focused on selecting long life cycle international companies that we believe can generate long-term wealth through their business operations. This Fund is presently identifying what we believe to be exciting opportunities in the more developed markets.

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The Market Opportunities Fund focuses on those companies that benefit from increasing transactional volume or throughput, such as publicly-traded exchanges and credit card processors, or companies that act as facilitators, such as gaming companies, airports and publicly-traded toll roads.

The Alternative Income Fund seeks to provide current income and gains, with a secondary objective of obtaining long-term growth of capital. The Fund utilizes stock options and fixed-income investments and seeks to generate a total return that exceeds most short-term U.S. fixed income indexes, with limited market value variability.

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This material is intended to be reviewed in conjunction with a current prospectus, which includes all fees and expenses that apply to a continued investment, as well as information regarding the risk factors, policies and objectives of the Funds. Read it carefully before investing.

Mutual Fund investing involves risk. Principal loss is possible. Because The Internet Fund, The Medical Fund and The Market Opportunities Fund invest in a single industry or geographic region, their shares are subject to a higher degree of risk than funds with a higher level of diversification. Internet, biotechnology and certain capital markets or gaming stocks are subject to a rate of change in technology, obsolescence and competition that is generally higher than that of other industries, hence they may experience extreme price and volume fluctuations.

International investing [for all Funds] presents special risks including currency exchange fluctuation, government regulations, and the potential for political and economic instability. Accordingly, the share prices for these Funds are expected to be more volatile than that of U.S.-only funds. Past performance is no guarantee of future performance.

Because smaller companies [for The Small Cap Opportunities Fund] often have narrower markets and limited financial resources, they present more risk than larger, more well established, companies.

Non-investment grade debt securities [for all Funds], i.e., junk bonds, are subject to greater credit risk, price volatility and risk of loss than investment grade securities.

Further, options contain special risks including the imperfect correlation between the value of the option and the value of the underlying asset. Investments [for The Multi-Disciplinary Income Fund and The Alternative Income Fund] in futures, swaps and other derivative instruments may result in loss as derivative instruments may be illiquid, difficult to price and leveraged so that small changes may produce disproportionate losses to the Funds. To the extent the Funds segregate assets to cover derivative positions, they may impair their ability to meet current obligations, to honor requests for redemption

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and to manage the investments in a manner consistent with their respective investment objectives. Purchasing and writing put and call options and, in particular, writing "uncovered" options are highly specialized activities that entail greater than ordinary investment risk.

As non-diversified Funds, except The Global Fund, The Alternative Income Fund and The Multi-Disciplinary Income Fund, the value of Fund shares may fluctuate more than shares invested in a broader range of industries and companies. Unlike other investment companies that directly acquire and manage their own portfolios of securities, the Kinetics Mutual Funds pursue their investment objectives by investing all of their investable assets in a corresponding portfolio series of the Kinetics Portfolios Trust.

The information concerning the Funds included in the shareholder report contains certain forward-looking statements about the factors that may affect the performance of the Funds in the future. These statements are based on Fund management's predictions and expectations concerning certain future events and their expected impact on the Funds, such as performance of the economy as a whole and of specific industry sectors, changes in the levels of interest rates, the impact of developing world events, and other factors that may influence the future performance of the Funds. Management believes these forward-looking statements to be reasonable, although they are inherently uncertain and difficult to predict. Actual events may cause adjustments in portfolio management strategies from those currently expected to be employed.

The MSCI All Country World Index (MSCI ACWI) and the Standard & Poor's 500 Index (S&P 500) each represent an unmanaged, broad-basket of stocks. They are typically used as a proxy for overall market performance.

Distributor: Kinetics Funds Distributor LLC is not an affiliate of Kinetics Mutual Funds, Inc. Kinetics Funds Distributor LLC is an affiliate of Kinetics Asset Management LLC, Investment Adviser to Kinetics Mutual Funds, Inc.

For more information, log onto www.kineticsfunds.com. July 1, 2016 — Kinetics Asset Management LLC ^®

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Shareholders incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvestments of dividends or other distributions made by a Fund, redemption fees, and exchange fees, and (2), ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses. This example is intended to help investors understand the ongoing costs (in dollars) of investing in a series of Kinetics Mutual Funds, Inc. (each a "Feeder Fund" and collectively the "Feeder Funds"), and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested on January 1, 2016 and held for the entire period from January 1, 2016 to June 30, 2016.

Actual Expenses

The first line item of the table below provides information about actual account values and actual expenses before and after expense reimbursement. Unlike other mutual funds that directly acquire and manage their own portfolio securities, each Feeder Fund invests all or generally all of its investable assets in a corresponding series of The Kinetics Portfolios Trust (each, a "Master Portfolio", and together the "Master Portfolios"), a separately registered investment company. The Master Portfolio, in turn, invests in securities. With this type of organization, expenses can accrue specifically to the Master Portfolio or the Feeder Fund or both. Each Feeder Fund records its proportionate share of the Master Portfolio's expenses, including directed brokerage credits, on a daily basis. Any expense reductions include Fund-specific expenses as well as the expenses allocated from the Master Portfolio.

The Feeder Funds will charge shareholder fees for outgoing wire transfers, returned checks, and exchanges executed by telephone between a Feeder Fund and any other Feeder Fund. The Feeder Funds' transfer agent charges a $5.00 transaction fee to shareholder accounts for telephone exchanges between any two Feeder Funds. The Feeder Funds' transfer agent does not charge a transaction fee for written exchange requests. IRA accounts are assessed a $15.00 annual fee. Finally, as a disincentive to market-timing transactions, the Feeder Funds will assess a 2.00% fee on the redemption or exchange of Fund shares held for less than 30 days. These fees will be paid to the Feeder Funds to help offset transaction costs. The Feeder Funds reserve the right to waive the redemption fee, subject to their sole discretion, in instances deemed not to be disadvantageous to the Feeder Funds or shareholders as described in the Feeder Funds' prospectus.

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You may use the information provided in the first line, together with the amounts you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.

Hypothetical Example for Comparison Purposes

The second line item of the table below provides information about hypothetical account values and hypothetical expenses before and after expense reimbursements based on the Feeder Funds' actual expense ratios and an assumed rate of return of 5% per year before expenses, which are not the Feeder Funds' actual returns. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses one paid for the period. You may use this information to compare the ongoing costs of investing in the Feeder Funds and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight one's ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help one determine the relative total costs of owning different funds. If these transactional costs had been included, one's costs would have been higher.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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The accompanying notes are an integral part of these financial statements.

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