N-CSRS 1 c78804anvcsrs.txt FORM N-CSRS As filed with the Securities and Exchange Commission on 8/26/03 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-09303 & 811-09923 --------------------- KINETICS MUTUAL FUNDS, INC. & KINETICS PORTFOLIOS TRUST 1311 MAMARONECK AVENUE WHITE PLAINS, NY 10605 ---------------------- (Address of principal executive offices) (Zip code) MR. LEONID POLYAKOV 1311 MAMARONECK AVENUE WHITE PLAINS, NY 10605 ------------------- (Name and address of agent for service) (800) 930-3828 -------------- Registrant's telephone number, including area code Date of fiscal year end: DECEMBER 31, 2003 ----------------- Date of reporting period: JANUARY 1, 2003 TO JUNE 30, 2003 -------------------------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORT TO STOCKHOLDERS. JUNE 30, 2003 WWW.KINETICSFUNDS.COM SEMI-ANNUAL REPORT The INTERNET Fund The Internet EMERGING GROWTH Fund The PARADIGM Fund The MEDICAL Fund The SMALL CAP OPPORTUNITIES Fund The KINETICS GOVERNMENT MONEY MARKET Fund EACH A SERIES OF KINETICS MUTUAL FUNDS, INC. [KINETICS MUTUAL FUNDS, INC. LOGO] KINETICS MUTUAL FUNDS, INC. TABLE OF CONTENTS June 30, 2003

PAGE ---- Shareholders' Letter........................................ 2 Investment Commentary....................................... 4 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS Statement of Assets & Liabilities......................... 10 Statement of Operations................................... 13 Statement of Changes in Net Assets........................ 16 Notes to Financial Statements............................. 23 Financial Highlights...................................... 32 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS Portfolio of Investments The Internet Portfolio........... 43 Portfolio of Investments The Internet Emerging Growth Portfolio.............................................. 49 Portfolio of Investments The Paradigm Portfolio........... 53 Portfolio of Investments The Medical Portfolio............ 58 Portfolio of Investments The Small Cap Opportunities Portfolio.............................................. 62 Portfolio of Investments The Kinetics Government Money Market Portfolio....................................... 68 Portfolio of Options Written The Internet Portfolio....... 69 Portfolio of Options Written The Paradigm Portfolio....... 70 Portfolio of Options Written The Medical Portfolio........ 71 Portfolio of Options Written The Small Cap Opportunities Portfolio.............................................. 72 Statement of Assets & Liabilities......................... 73 Statement of Operations................................... 76 Statement of Changes in Net Assets........................ 79 Notes to Financial Statements............................. 83

1 KINETICS MUTUAL FUNDS, INC. SHAREHOLDERS' LETTER Dear Shareholders, We are pleased to present the Kinetics Mutual Funds semi-annual report for the period ended June 30, 2003. For the first six months of 2003, our equity Funds posted strong investment advances (see Investment Commentary). More gratifying than this seemingly long overdue occurrence were the underlying business advances made by the majority of the companies held by our Funds. Since we view the funds' stock holdings as fractional ownership in the businesses themselves, we look to the business operations to validate our investment thinking rather than to the short-term randomness of the stock market. Why? Over short time periods, the mismatch between stock prices and increased business value can be rather dramatic. Longer term, however, we believe there is a very high correlation between increased stock prices and increased intrinsic business values. With this investment approach, the intrinsic business values of the funds' holdings should be substantially higher five years hence. We believe these increased values should allow for very satisfactory investment returns when viewed in the context of the overall market and today's interest rates. Kinetics Mutual Funds also had significant advances in other respects. The sizes of our Small Cap Opportunities Fund and our Paradigm Fund increased substantially since the start of the year, albeit from relatively small asset bases. This investment inflow was, we believe, largely a function of superior investment results over the last several years and the Funds being accorded a level of recognition by companies that rate mutual funds. It is very appropriate that these Funds, particularly The Paradigm Fund, should have experienced a less volatile ride over the last several years. These Funds have the broadest mandates and can seek value across many different industries. The Paradigm Fund has the further advantage of buying across all market capitalizations. The growth in assets of these Funds is important to existing shareholders because it may contribute to lower expense ratios in the future. We continue to inform our shareholders through our website, www.kineticsfunds.com. This website provides a broad array of information, including recent portfolio holdings, investment com- 2 mentary, newsflashes, recent performance data, and online access to account information. THE INTERNET FUND has produced satisfactory long-term returns, albeit lumpy, by investing in the evolution of Internet-related technology. This Fund is sector specific and should represent only a small component of one's equity exposure. THE INTERNET EMERGING GROWTH FUND focuses on early-life-cycle companies that are positioned on the edge of the curve in the evolution of Internet-related technology. This offering is a sector fund. THE PARADIGM FUND focuses on companies that have sustainable high returns on equity. This Fund has produced positive returns over the last 3 1/2 years. The typical large stock index has posted substantial negative returns over the same time period. This Fund has the broadest mandate of our equity offerings and can represent a much larger exposure of one's equity holdings. THE MEDICAL FUND provides an investment in scientific discovery within the promising field of medical research, particularly in the development of cancer treatments and therapies. The Fund focuses on pharmaceutical/biotechnology companies and should be considered a sector fund. THE SMALL CAP OPPORTUNITIES FUND focuses on undervalued and special situation small capitalization equities that have the potential for rewarding long-term investment results. This Fund has a broad mandate, but is limited as to market capitalization. THE KINETICS GOVERNMENT MONEY MARKET FUND is a short-term investment vehicle that serves to complement our equity product offerings. /s/ Peter B. Doyle Peter B. Doyle Chief Investment Strategist 3 KINETICS MUTUAL FUNDS, INC. INVESTMENT COMMENTARY Dear Shareholders, In our year-end 2002 Market Commentary, we duly noted our inability to forecast short-term movements in the stock market. In fact, we have such a strong conviction that we possess no "market" insight that we have been prompted to rename this writing "Investment Commentary". Perhaps we are deluded, but we view ourselves as being somewhat competent to discuss investments. Had we been forced, at year-end 2002, to forecast the market for the first six months of 2003, we would have ventured a guess that the market would have been lower. This forecast, or guess, would have been based on our analysis that the typical stock, in December 2002, violated the margin-of-safety concept. That is, in our opinion, investors were routinely paying more than a dollar for a dollar's worth of value. Even a very casual observer of the financial markets would know that our hypothetical forecast would have missed its mark by a considerable margin. Did our admitted inability to forecast the market hurt our investment results? On balance, the answer is a resounding no. Nor do we believe it will ever hurt our investment results in the future. For the first six months of 2003, the NASDAQ Composite Index and the S&P 500 Index appreciated by 21.82% and 11.76%, respectively. These two indices are commonly used benchmarks that measure how the "typical" stock has performed, with the NASDAQ Composite capturing more of a technology orientation. Over the same time period, our Investor Class Funds posted the following positive results: Internet Fund -- 26.78%; Small Cap Opportunities Fund -- 26.00%; Paradigm Fund -- 20.75%; Medical Fund -- 18.00%; and the Internet Emerging Growth Fund -- 15.12%. Our investment results were derived from bottom-up stock analysis and a decidedly agnostic view of the market. If, at the end of 2002, we believed that the typical stock was trading above its intrinsic value, then one might conclude that the typical stock we analyze today is even more overvalued. That is, in fact, the case for the typical stock. Why has the market moved increasingly higher? The conventional wisdom of Wall Street is that corporate earnings will recover during the second half of 2003. This recovery, 4 incidentally, was to have happened last year and the year before that as well. Therefore, one should not be surprised by a failure of this thesis, although it has been the justifying force behind the most recent rise in stock prices. Underlying this earnings rebound is the premise that the economy will post higher Gross Domestic Product ("GDP") growth, as a result of lower interest rates, tax cuts and the conclusion of the Iraqi war. The standard estimate of the potential growth of U.S GDP is 3%. Given that the GDP of the United States is now approximately $10 trillion, 3% growth would entail the economy's expanding by approximately $300 billion annually. This certainly seems plausible, and it may very well be achieved. On the other hand, it may not. At present, the sum total of outstanding debt (government, corporate, financial, and consumer) is approximately $34 trillion, or 3.4 times the amount of GDP. In this situation, the $300 billion of GDP growth needs to be achieved without real interest rates moving higher and without the same type of monetary stimulus that we have had over the last 20+ years, where rates fell from 21% to the present level of 1%. It is hard to conceive of a world where interest rates move to -19% over the next 20 years. Why is it critical that this growth be accomplished without a rise in real interest rates? If rates were to rise just 1% from today's level, then creditors would take the first $340 billion of expanded output ($34 trillion x 1%). The U.S. debt burden is now at such a level that we run the very real risk of transferring future growth to creditors. Historically, any country that has allowed its debt to become significantly greater than its GDP has not ended up with a thriving economy, but rather, the complete opposite. Our brief commentary does not even consider the expansion of the U.S. population and the effect that this might have on lowering per-capita GDP. We are not predicting higher real interest rates, or even that the forecasted GDP growth will not be achieved; however, investors should certainly question conventional wisdom. Further, we believe it would be a grievous investment mistake to construct entire portfolios upon such a forecast being achieved. One might even profit greatly by placing some of one's bets against such wisdom. 5 Our efforts have been, and remain, focused on the process of seeking out non-codependent investments (companies that have no business relationships with each other) that trade at a discount, preferably at a steep discount, to their long-term underlying business value. Acquisition at a discount to intrinsic value adds a cushion during difficult market conditions. Our mutual success will be highly correlated with the proper analysis of the companies we own. In this regard, financial analysis of individual companies is a skill for which we believe we possess some competence. We thank you for your confidence and look forward to continuing to provide you with products and services that will assist you in achieving your investment goals. /s/ Peter B. Doyle Peter B. Doyle Chief Investment Strategist 6 DISCLOSURE 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 PROGRAM, AS WELL AS INFORMATION REGARDING THE RISK FACTORS, POLICIES AND OBJECTIVES OF THE FUNDS. READ IT CAREFULLY BEFORE INVESTING. BECAUSE THE FUNDS [OTHER THAN THE PARADIGM FUND, THE SMALL CAP OPPORTUNITIES FUND AND THE KINETICS GOVERNMENT MONEY MARKET 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 AND BIOTECHNOLOGY STOCKS ARE SUBJECT TO A RATE OF CHANGE IN TECHNOLOGY, OBSOLESCENCE AND COMPETITION WHICH IS GENERALLY HIGHER THAN THAT OF OTHER INDUSTRIES AND HAVE EXPERIENCED EXTREME PRICE AND VOLUME FLUCTUATIONS. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE. BECAUSE SMALLER COMPANIES [FOR THE INTERNET EMERGING GROWTH FUND AND THE SMALL CAP OPPORTUNITIES FUND] OFTEN HAVE NARROWER MARKETS AND LIMITED FINANCIAL RESOURCES, THEY PRESENT MORE RISK THAN LARGER MORE WELL ESTABLISHED COMPANIES. AS NON-DIVERSIFIED [OTHER THAN THE KINETICS GOVERNMENT MONEY MARKET FUND] AND SINGLE INDUSTRY FUNDS, THE VALUE OF THEIR SHARES MAY FLUCTUATE MORE THAN SHARES INVESTED IN A BROADER RANGE OF INDUSTRIES AND COMPANIES. 7 AN INVESTMENT IN THE KINETICS GOVERNMENT MONEY MARKET FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. UNLIKE OTHER INVESTMENT COMPANIES THAT DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIOS OF SECURITIES, EACH OF THE KINETICS MUTUAL FUNDS PURSUE ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING PORTFOLIO SERIES OF KINETICS PORTFOLIOS TRUST. THE INFORMATION CONCERNING THE FUNDS INCLUDED IN THE SHAREHOLDER REPORT CONTAIN 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. DISTRIBUTOR: KINETICS FUNDS DISTRIBUTOR, INC. IS NOT AN AFFILIATE OF KINETICS MUTUAL FUNDS, INC. KINETICS FUNDS DISTRIBUTOR, INC. IS AN AFFILIATE OF KINETICS ASSET MANAGEMENT, INC., INVESTMENT ADVISER TO KINETICS MUTUAL FUNDS, INC. (C)JANUARY 1, 2003 -- KINETICS ASSET MANAGEMENT, INC. 8 (This page intentionally left blank) 9 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE INTERNET THE INTERNET EMERGING GROWTH FUND FUND ---------------------------------------------------------------------------------- ASSETS: Investments in the Master Portfolios, at value*....................................... $ 260,962,733 $ 4,414,980 Receivable from Adviser........................ 16,778 20,877 Receivable for Fund shares sold................ 6,589,304 107,100 Prepaid expenses............................... 28,911 7,997 ------------- ------------ Total assets................................. 267,597,726 4,550,954 ------------- ------------ LIABILITIES: Payable for Master Portfolio interest purchased.................................... 6,379,616 106,109 Payable to Directors........................... 12,321 170 Payable for service fees....................... 56,203 869 Payable for distribution fees.................. 4,497 -- Payable for Fund shares repurchased............ 209,689 991 Accrued expenses and other liabilities......... 410,549 15,004 ------------- ------------ Total liabilities............................ 7,072,875 123,143 ------------- ------------ Net assets................................... $ 260,524,851 $ 4,427,811 ============= ============ NET ASSETS CONSIST OF: Paid in capital................................ $ 474,320,871 $ 15,996,847 Accumulated net investment income (loss)....... 26,898 (14,376) Accumulated net realized loss on investments, options and written option contracts......... (242,309,341) (10,746,835) Net unrealized appreciation (depreciation) on: Investments.................................. 28,452,825 (807,825) Written option contracts..................... 33,598 -- ------------- ------------ Net assets................................... $ 260,524,851 $ 4,427,811 ============= ============ CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS: Net assets..................................... $ 256,487,797 $ 4,427,811 Shares outstanding............................. 12,119,312 1,187,496 Net asset value per share (offering and redemption price)............................ $ 21.16 $ 3.73 ============= ============ CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets..................................... $ 4,037,054 Shares outstanding............................. 194,248 Net asset value per share...................... $ 20.78 ============= Offering price per share ($20.78 divided by .9425)....................................... $ 22.05 =============

------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Fund's financial statements. See Notes to the Financial Statements. 10 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE PARADIGM THE MEDICAL FUND FUND ---------------------------------------------------------------------------------------- ASSETS: Investments in the Master Portfolios, at value*............ $30,546,487 $26,745,265 Receivable from Adviser.................................... 4 -- Receivable for Fund shares sold............................ 337,246 77,840 Prepaid expenses........................................... 22,105 11,228 ----------- ----------- Total assets............................................. 30,905,842 26,834,333 ----------- ----------- LIABILITIES: Payable for Master Portfolio interest purchased............ 254,037 64,812 Payable to Directors....................................... 787 1,211 Payable for service fees................................... 5,709 6,033 Payable for distribution fees.............................. 2,297 463 Payable for Fund shares repurchased........................ 83,209 13,029 Accrued expenses and other liabilities..................... 19,690 43,263 ----------- ----------- Total liabilities........................................ 365,729 128,811 ----------- ----------- Net assets............................................... $30,540,113 $26,705,522 =========== =========== NET ASSETS CONSIST OF: Paid in capital............................................ $27,450,154 $31,501,467 Accumulated net investment income (loss)................... 41,112 (154,184) Accumulated net realized loss on investments, options and written option contracts................................. (735,097) (2,515,002) Net unrealized appreciation (depreciation) on: Investments.............................................. 3,762,167 (1,990,304) Written option contracts................................. 21,777 (136,455) ----------- ----------- Net assets............................................... $30,540,113 $26,705,522 =========== =========== CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS: Net assets................................................. $19,889,511 $25,981,653 Shares outstanding......................................... 1,627,057 1,731,363 Net asset value per share (offering and redemption price)................................................... $ 12.22 $ 15.01 =========== =========== CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets................................................. $ 9,925,094 $ 723,869 Shares outstanding......................................... 816,191 48,714 Net asset value per share.................................. $ 12.16 $ 14.86 =========== =========== Offering price per share ($12.16 divided by .9425 and $14.86 divided by .9425, respectively)................... $ 12.90 $ 15.77 =========== =========== CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS C: Net assets................................................. $ 725,508 Shares outstanding......................................... 59,973 Net asset value per share (offering and redemption price)................................................... $ 12.10 ===========

------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Fund's financial statements. See Notes to the Financial Statements. 11 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE SMALL THE KINETICS CAP GOVERNMENT OPPORTUNITIES MONEY FUND MARKET FUND ------------------------------------------------------------------------------------------ ASSETS: Investments in the Master Portfolios, at value*............ $32,161,738 $65,292,763 Receivable from Adviser.................................... 556 57,538 Receivable for Master Portfolio interest sold.............. 7,048,492 3,139,259 Receivable for Fund shares sold............................ 73,782 3,139,363 Prepaid expenses........................................... 18,695 13,678 ----------- ----------- Total assets............................................. 39,303,263 71,642,601 ----------- ----------- LIABILITIES: Payable to Directors....................................... 952 2,763 Payable for service fees................................... 8,965 9,136 Payable for distribution fees.............................. 228 -- Payable for Fund shares repurchased........................ 7,122,275 6,278,622 Accrued expenses and other liabilities..................... 22,081 49,935 ----------- ----------- Total liabilities........................................ 7,154,501 6,340,456 ----------- ----------- Net assets............................................... $32,148,762 $65,302,145 =========== =========== NET ASSETS CONSIST OF: Paid in capital............................................ $30,541,803 $65,302,145 Accumulated net investment income.......................... 133,799 -- Accumulated net realized loss on investments, options and written option contracts................................. (1,636,821) -- Net unrealized appreciation on: Investments.............................................. 3,095,273 -- Written option contracts................................. 14,708 -- ----------- ----------- Net assets............................................... $32,148,762 $65,302,145 =========== =========== CALCULATION OF NET ASSET VALUE PER SHARE -- INVESTOR CLASS: Net assets................................................. $31,014,605 $65,302,145 Shares outstanding......................................... 2,451,013 65,302,145 Net asset value per share (offering and redemption price)................................................... $ 12.65 $ 1.00 =========== =========== CALCULATION OF NET ASSET VALUE PER SHARE -- ADVISOR CLASS A: Net assets................................................. $ 1,134,157 Shares outstanding......................................... 89,851 Net asset value per share.................................. $ 12.62 =========== Offering price per share ($12.62 divided by .9425)......... $ 13.39 ===========

------------------ * Each Feeder Fund invests its assets directly in the corresponding Master Portfolio. The financial statements for the Master Portfolios, along with the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Fund's financial statements. See Notes to the Financial Statements. 12 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE INTERNET THE INTERNET EMERGING FUND GROWTH FUND ----------------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 725,348 $ 11,236 Interest.................................................. 2,213,319 22,170 Income from securities lending............................ 12,525 128 ----------- -------- Total investment income............................... 2,951,192 33,534 ----------- -------- EXPENSES: Expenses allocated from Master Portfolios................. 1,843,470 30,638 Shareholder servicing fees and expenses................... 824,024 23,413 Administration fees....................................... 79,424 1,096 Reports to shareholders................................... 68,015 858 Registration fees......................................... 17,903 6,659 Professional fees......................................... 40,118 3,465 Directors' fees and expenses.............................. 19,661 266 Fund accounting fees...................................... 6,275 -- Distribution fees -- Advisor Class A...................... 14,891 -- Other expenses............................................ 9,604 137 ----------- -------- Total expenses........................................ 2,923,385 66,532 Less, expense reimbursement and waiver.................... -- (20,180) ----------- -------- Net expenses.......................................... 2,923,385 46,352 ----------- -------- Net investment income (loss).......................... 27,807 (12,818) ----------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized gain (loss) on: Investments and foreign currency...................... (8,591,931) (22,544) Written option contracts expired or closed............ (1,940,185) 9,218 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency...................... 72,151,974 524,516 Written option contracts.............................. (81,101) (5,853) ----------- -------- Net gain on investments............................... 61,538,757 505,337 ----------- -------- Net increase in net assets resulting from operations.......................................... $61,566,564 $492,519 =========== ======== + Net of Foreign Taxes Withheld of: $ 54,142 $ 292 =========== ========

See Notes to the Financial Statements. 13 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE PARADIGM THE MEDICAL FUND FUND -------------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 112,056 $ 113,309 Interest.................................................. 131,194 38,291 Income from securities lending............................ 597 2,008 ---------- ---------- Total investment income............................... 243,847 153,608 ---------- ---------- EXPENSES: Expenses allocated from Master Portfolios................. 121,679 186,862 Shareholder servicing fees and expenses................... 37,526 84,101 Administration fees....................................... 4,879 7,961 Reports to shareholders................................... 5,668 6,465 Registration fees......................................... 17,555 12,385 Professional fees......................................... 3,041 4,351 Directors' fees and expenses.............................. 1,260 1,911 Fund accounting fees...................................... 447 592 Distribution fees -- Advisor Class A...................... 8,220 2,051 Distribution fees -- Advisor Class C...................... 2,167 -- Other expenses............................................ 293 1,113 ---------- ---------- Net expenses.......................................... 202,735 307,792 ---------- ---------- Net investment gain (loss)............................ 41,112 (154,184) ---------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized gain (loss) on: Investments and foreign currency...................... (201,775) (210,480) Written option contracts expired or closed............ 28,860 116,662 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency...................... 3,409,034 4,576,646 Written option contracts.............................. 26,165 (292,185) ---------- ---------- Net gain on investments............................... 3,262,284 4,190,643 ---------- ---------- Net increase in net assets resulting from operations.......................................... $3,303,396 $4,036,459 ========== ========== + Net of Foreign Taxes Withheld of: $ 5,234 $ 11,289 ========== ==========

See Notes to the Financial Statements. 14 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE KINETICS THE SMALL CAP GOVERNMENT OPPORTUNITIES MONEY MARKET FUND FUND ------------------------------------------------------------------------------------------ INVESTMENT INCOME ALLOCATED FROM MASTER PORTFOLIOS: Dividends+................................................ $ 123,825 $ -- Interest.................................................. 206,399 339,517 Income from securities lending............................ 96 -- ---------- -------- Total investment income............................... 330,320 339,517 ---------- -------- EXPENSES: Expenses allocated from Master Portfolios................. 129,147 247,884 Shareholder servicing fees and expenses................... 36,375 95,782 Administration fees....................................... 4,395 22,846 Reports to shareholders................................... 6,423 -- Registration fees......................................... 14,574 9,172 Professional fees......................................... 3,321 13,315 Directors' fees and expenses.............................. 1,097 5,522 Fund accounting fees...................................... 350 -- Distribution fees -- Advisor Class A...................... 618 -- Other expenses............................................ 221 1,070 ---------- -------- Total expenses........................................ 196,521 395,591 Less, expense reimbursement and waiver.................... -- (56,074) ---------- -------- Net expenses.......................................... 196,521 339,517 ---------- -------- Net investment income (loss).......................... 133,799 -- ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ALLOCATED FROM MASTER PORTFOLIOS: Net realized gain (loss) on: Investments and foreign currency...................... (78,532) -- Written option contracts expired or closed............ 1,177 -- Net change in unrealized appreciation of: Investments and foreign currency...................... 3,173,279 -- Written option contracts.............................. 10,504 -- ---------- -------- Net gain on investments............................... 3,106,428 -- ---------- -------- Net increase in net assets resulting from operations.......................................... $3,240,227 $ -- ========== ======== + Net of Foreign Taxes Withheld of: $ 332 $ -- ========== ========

See Notes to the Financial Statements. 15 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS

THE INTERNET EMERGING THE INTERNET FUND GROWTH FUND --------------------------------- ---------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)......... $ 27,807 $ (1,207,762) $ (12,818) $ (80,485) Net realized loss on sale of investments, foreign currency and written option contracts expired or closed............................. (10,532,116) (119,819,338) (13,326) (2,201,840) Net change in unrealized appreciation of investments, foreign currency and written options................ 72,070,873 59,166,667 518,663 1,051,111 --------------- --------------- ---------- ----------- Net increase (decrease) in net assets resulting from operations..................... 61,566,564 (61,860,433) 492,519 (1,231,214) --------------- --------------- ---------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR CLASS: Net investment income................ -- -- -- -- Net realized gains................... -- -- -- -- --------------- --------------- ---------- ----------- Total distributions.............. -- -- -- -- --------------- --------------- ---------- ----------- DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income................ -- -- N/A N/A Net realized gains................... -- -- N/A N/A --------------- --------------- ---------- ----------- Total distributions.............. -- -- N/A N/A --------------- --------------- ---------- ----------- CAPITAL SHARE TRANSACTIONS -- INVESTOR CLASS: Proceeds from shares sold............ 1,561,597,468 5,646,935,786 881,232 554,524 Proceeds from shares issued to holders in reinvestment of dividends.......................... -- -- -- -- Cost of shares redeemed.............. (1,553,902,955) (5,691,413,210) (283,906) (1,262,818) --------------- --------------- ---------- ----------- Net increase (decrease) in net assets resulting from capital share transactions............. 7,694,513 (44,477,424) 597,326 (708,294) --------------- --------------- ---------- ----------- CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold............ 566,585,699 1,408,657,744 N/A N/A Proceeds from shares issued to holders in reinvestment of dividends.......................... -- -- N/A N/A Cost of shares redeemed.............. (565,446,712) (1,410,963,079) N/A N/A --------------- --------------- ---------- ----------- Net increase (decrease) in net assets resulting from capital share transactions............. 1,138,987 (2,305,335) N/A N/A --------------- --------------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS............................... 70,400,064 (108,643,192) 1,089,845 (1,939,508) NET ASSETS: Beginning of period.................. 190,124,787 298,767,979 3,337,966 5,277,474 --------------- --------------- ---------- ----------- End of period*....................... $ 260,524,851 $ 190,124,787 $4,427,811 $ 3,337,966 =============== =============== ========== ===========

See Notes to the Financial Statements. 16 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)

THE INTERNET EMERGING THE INTERNET FUND GROWTH FUND --------------------------------- ---------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 -------------------------------------------------------------------------------------------------------- *Including undistributed net investment income (loss) of:......... $ 26,898 $ (909) $ (14,376) $ (1,558) --------------- --------------- ---------- ----------- CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS: Shares sold.......................... 89,735,352 306,385,784 243,446 145,062 Shares issued in reinvestment of dividends and distributions........ -- -- -- -- Shares redeemed...................... (88,976,638) (308,686,468) (85,570) (342,798) --------------- --------------- ---------- ----------- Net increase (decrease) in shares outstanding.................... 758,714 (2,300,684) 157,876 (197,736) =============== =============== ========== =========== CHANGES IN SHARES OUTSTANDING -- CLASS A: Shares sold.......................... 32,341,793 81,574,373 Shares issued in reinvestments of dividends and distributions........ -- -- Shares redeemed...................... (32,178,304) (81,588,440) --------------- --------------- Net increase (decrease) in shares outstanding...................... 163,489 (14,067) =============== ===============

See Notes to the Financial Statements. 17 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS

THE PARADIGM FUND THE MEDICAL FUND ---------------------------- ---------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)............. $ 41,112 $ (155,724) $ (154,184) $ (447,134) Net realized loss on sale of investments, foreign currency and written option contracts expired or closed............ (172,915) (453,184) (93,818) (2,214,209) Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options........... 3,435,199 111,727 4,284,461 (8,859,857) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from operations.......... 3,303,396 (497,181) 4,036,459 (11,521,200) ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR CLASS: Net investment income.................... -- -- -- -- Net realized gain........................ -- -- -- (129,541) ------------ ------------ ------------ ------------ Total distributions.................. -- -- -- (129,541) ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income.................... -- -- -- -- Net realized gain........................ -- -- -- (4,793) ------------ ------------ ------------ ------------ Total distributions.................. -- -- -- (4,793) ------------ ------------ ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS C: Net investment income.................... -- -- N/A N/A Net realized gain........................ -- -- N/A N/A ------------ ------------ ------------ ------------ Total distributions.................. -- -- N/A N/A ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS -- INVESTOR CLASS: Proceeds from shares sold................ 29,121,484 22,426,587 49,429,559 86,853,152 Proceeds from shares issued to holders in reinvestment of dividends.............. -- -- -- 126,906 Cost of shares redeemed.................. (16,043,619) (21,978,565) (49,829,062) (93,675,221) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions....................... 13,077,865 448,022 (399,503) (6,695,163) ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold................ 14,792,602 3,090,062 36,313,366 65,379,296 Proceeds from shares issued to holders in reinvestment of dividends.............. -- -- -- 4,401 Cost of shares redeemed.................. (11,237,330) (1,965,920) (36,643,681) (65,253,538) ------------ ------------ ------------ ------------ Net increase (decrease) in net assets resulting from capital share transactions....................... 3,555,272 1,124,142 (330,315) 130,159 ------------ ------------ ------------ ------------ CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS C: Proceeds from shares sold................ 270,675 550,010 N/A N/A Proceeds from shares issued to holders in reinvestment of dividends.............. -- -- N/A N/A Cost of shares redeemed.................. (172,239) (27,997) N/A N/A ------------ ------------ ------------ ------------ Net increase in net assets resulting from capital share transactions.... 98,436 522,013 N/A N/A ------------ ------------ ------------ ------------

See Notes to the Financial Statements. 18 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)

THE PARADIGM FUND THE MEDICAL FUND ---------------------------- ---------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------------------------------------------------------------------------------------------------- TOTAL INCREASE (DECREASE) IN NET ASSETS... $ 20,034,969 $ 1,596,996 $ 3,306,641 $(18,220,538) NET ASSETS: Beginning of period...................... 10,505,144 8,908,148 23,398,881 41,619,419 ------------ ------------ ------------ ------------ End of period*........................... $ 30,504,113 $10,505,144 $ 26,705,522 $ 23,398,881 ============ ============ ============ ============ *Including undistributed net investment income (loss) of:........................ $ 41,112 $ -- $ (154,184) $ -- ------------ ------------ ------------ ------------ CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS: Shares sold.............................. 2,695,689 2,247,157 3,756,570 6,260,737 Shares issued in reinvestment of dividends and distributions............ -- -- -- 10,001 Shares redeemed.......................... (1,567,150) (2,202,818) (3,801,729) (6,732,101) ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding........................ 1,128,539 44,339 (45,159) (461,363) ============ ============ ============ ============ CHANGES IN SHARES OUTSTANDING -- CLASS A: Shares sold.............................. 1,287,100 293,855 2,699,084 4,842,360 Shares issued in reinvestment of dividends and distributions............ -- -- -- 350 Shares redeemed.......................... (961,524) (189,746) (2,713,361) (4,846,511) ------------ ------------ ------------ ------------ Net increase (decrease) in shares outstanding........................ 325,576 104,109 (14,277) (3,801) ============ ============ ============ ============ CHANGES IN SHARES OUTSTANDING -- CLASS C: Shares sold.............................. 25,173 54,355 Shares issued on reinvestment of dividends and distributions............ -- -- Shares redeemed.......................... (16,827) (2,728) ------------ ------------ Net increase in shares outstanding... 8,346 51,627 ============ ============

See Notes to the Financial Statements. 19 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS

THE SMALL CAP OPPORTUNITIES FUND ---------------------------- SIX MONTHS FOR THE ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 --------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)........................... $ 133,799 $ (104,261) Net realized loss on sale of investments, foreign currency and written option contracts expired or closed............................................... (77,355) (1,536,495) Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options.... 3,183,783 (648,470) ------------- ------------ Net increase or (decrease) in net assets resulting from operations.................................. 3,240,227 (2,289,226) ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS -- INVESTOR CLASS: Net investment income.................................. -- -- Net realized gains..................................... -- (36,678) ------------- ------------ Total distributions................................ -- (36,678) ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS -- ADVISOR CLASS A: Net investment income.................................. -- -- Net realized gains..................................... -- (1,183) ------------- ------------ Total distributions................................ -- (1,183) ------------- ------------ CAPITAL SHARE TRANSACTIONS -- INVESTOR CLASS: Proceeds from shares sold.............................. 182,855,462 74,507,932 Proceeds from shares issued to holders in reinvestment of dividends......................................... -- 22,807 Cost of shares redeemed................................ (158,277,946) (78,255,929) ------------- ------------ Net increase (decrease) in net assets resulting from capital share transactions.................. 24,577,516 (3,725,190) ------------- ------------ CAPITAL SHARE TRANSACTIONS -- ADVISOR CLASS A: Proceeds from shares sold.............................. 1,039,568 445,436 Proceeds from shares issued to holders in reinvestment of dividends......................................... -- 1,183 Cost of shares redeemed................................ (193,557) (176,614) ------------- ------------ Net increase in net assets resulting from capital share transactions............................... 846,011 270,005 ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS.................. 28,663,754 (5,782,272) NET ASSETS: Beginning of period...................................... 3,485,008 9,267,208 ------------- ------------ End of period*........................................... $ 32,148,762 $ 3,485,008 ============= ============ *Including undistributed net investment income of:....... $ 133,799 $ -- ------------- ------------

See Notes to the Financial Statements. 20 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS -- (CONTINUED)

THE SMALL CAP OPPORTUNITIES FUND ---------------------------- SIX MONTHS FOR THE ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 --------------------------------------------------------------------------------------- CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS: Shares sold............................................ 16,789,864 6,817,655 Shares issued in reinvestment of dividends and distributions........................................ -- 2,290 Shares redeemed........................................ (14,668,729) (7,129,102) ------------- ------------ Net increase (decrease) in shares outstanding...... 2,121,135 (309,157) ============= ============ CHANGES IN SHARES OUTSTANDING -- ADVISOR CLASS A: Shares sold............................................ 87,897 31,522 Shares issued in reinvestment of dividends and distributions........................................ -- 119 Shares redeemed........................................ (15,242) (14,510) ------------- ------------ Net increase in shares outstanding................. 72,655 17,131 ============= ============

See Notes to the Financial Statements. 21 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS STATEMENT OF CHANGES IN NET ASSETS

THE KINETICS GOVERNMENT MONEY MARKET FUND --------------------------------- SIX MONTHS FOR THE ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 ----------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................... $ -- $ 176,234 --------------- --------------- Net increase in net assets resulting from operations.................................... -- 176,234 --------------- --------------- DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Net investment income............................... -- (176,234) Net realized gain on securities transactions........ -- -- --------------- --------------- Total dividends and distributions............... -- (176,234) --------------- --------------- CAPITAL SHARE TRANSACTIONS: Net proceeds from shares sold....................... 2,307,263,118 7,257,132,457 Reinvestment of distributions....................... -- 24,888 Cost of shares redeemed............................. (2,370,618,021) (7,223,386,603) --------------- --------------- Net increase (decrease) in net assets from capital share transactions.................... (63,354,903) 33,770,742 --------------- --------------- TOTAL INCREASE (DECREASE) IN NET ASSETS............... (63,354,903) 33,770,742 NET ASSETS: Beginning of period................................. 128,657,048 94,886,306 --------------- --------------- End of period*...................................... $ 65,302,145 $ 128,657,048 =============== =============== *Including undistributed net investment income of:.... $ -- $ -- =============== =============== CHANGES IN SHARES OUTSTANDING -- INVESTOR CLASS: Shares sold......................................... 2,307,263,118 7,257,132,457 Shares issued in reinvestment of dividends and distributions..................................... -- 24,888 Shares redeemed..................................... (2,370,618,021) (7,223,386,603) --------------- --------------- Net increase (decrease) in shares outstanding... (63,354,903) 33,770,742 =============== ===============

See Notes to the Financial Statements. 22 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS June 30, 2003 (Unaudited) 1. ORGANIZATION Kinetics Mutual Funds, Inc. (the "Company") is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), and is incorporated in the State of Maryland. The Company is an open-end management investment company issuing its shares in series. One billion shares are authorized for the Company with a par value of $0.001 per share. The series of the Company presently authorized are The Internet Fund ("Internet"), The Internet Emerging Growth Fund ("Emerging"),The Paradigm Fund ("Paradigm"), The Medical Fund ("Medical"), The Small Cap Opportunities Fund ("Small Cap"), and The Kinetics Government Money Market Fund ("Government") (each a "Feeder Fund" and collectively, the "Feeder Funds"). Investment operations of the Funds began on October 21, 1996 (Internet), September 30, 1999 (Medical), December 31, 1999 (Emerging and Paradigm), February 3, 2000 (Government), and March 20, 2000 (Small Cap). Each series, unlike many other investment companies which directly acquire and manage their own portfolios of securities, seeks its investment objective by investing all of its investable assets in a corresponding portfolio series (each a "Master Portfolio" and collectively the "Master Portfolios") of Kinetics Portfolios Trust (the "Trust"). On April 28, 2000, each Fund in the Company entered into a master-feeder fund structure. By entering into this structure, each Feeder Fund invested all of its assets in a corresponding Master Portfolio which had the same investment objective as the Feeder Fund. Each Master Portfolio has multiple feeder funds. Each Feeder Fund receives a proportionate amount of interest in the Master Portfolio equal to its relative contribution of capital. Thus, each Feeder Fund is allocated its portion of income, gains (losses) and expenses from the Master Portfolio. Each Feeder Fund's respective interest in the corresponding Master Portfolio as of June 30, 2003 is as follows:

INTEREST IN MASTER PORTFOLIO ---------------- Internet Fund......................................... 99.998% Emerging Fund......................................... 99.888% Paradigm Fund......................................... 99.955% Medical Fund.......................................... 99.963% Small Cap Fund........................................ 99.962% Government Fund....................................... 99.961%

Prior to the conversion to a master-feeder fund structure on April 28, 2000, each then existing Feeder Fund conducted its own investment operations. 23 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) Effective April 26, 2001, the Internet, Paradigm and Medical Funds issued an additional class of shares -- Advisor Class A. Effective December 31, 2001, the Small Cap Fund issued an additional class of shares -- Advisor Class A. Advisor Class A shares are subject to an annual Rule 12b-1 fee of 0.25% of average daily net assets. The Advisor Class A shares are also subject to a maximum front-end sales charge of 5.75%. Effective June 28, 2002 the Paradigm Fund issued an additional class of shares -- Advisor Class C. Advisor Class C shares are subject to an annual Rule 12b-1 fee of 0.75% of average daily net assets. The Investor Class shares do not pay a 12b-1 fee or have a sales charge. Each class of shares for each Fund has identical rights and privileges except with respect to the Rule 12b-1 fees paid by the Advisor Class A and Class C shares, the sales charge by the Advisor Class A and Class C shares, voting rights on matters pertaining to a single class of shares and the exchange privileges of each class of shares. Refer to the Master Portfolio's financial statements to obtain information about the investment objective of the corresponding Feeder Fund. The financial statements of the Master Portfolios, including the portfolio of investments in securities, are contained elsewhere in this report and should be read in conjunction with the Feeder Funds' financial statements. 2. SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION Master Portfolio securities (other than Government) that are listed on a U.S. securities exchange (whether domestic or foreign) for which market quotations are readily available are valued at the last quoted sale price as of 4:00 p.m. Eastern time on the day the valuation is made. All equity securities that are traded using the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") are valued using the NASDAQ Official Closing Price ("NOCP"). Purchased options, futures, unlisted U.S. securities and listed U.S. securities not traded on the valuation date for which market quotations are readily available are valued at the most recent bid price. Fixed-income securities (other than obligations having a maturity of 60 days or less) are normally valued on the basis of quotes obtained from pricing services, which take into account appropriate factors such as institutional sized trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Investments in The Kinetics Government Money Market Portfolio and instruments with remaining maturities of 60 days or less are valued at 24 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) amortized cost, which approximates fair value. Other assets and securities for which no quotations are readily available (including restricted securities) are valued in good faith at fair value using methods determined by the Board of Trustees of the Master Portfolios. At June 30, 2003, the Master Portfolios did not hold any investment securities which were determined to be fair valued pursuant to the guidelines adopted by the Board of Trustees. REPURCHASE AGREEMENTS Each Master Portfolio may enter into repurchase agreements with banks that are members of the Federal Reserve System or securities dealers who are members of a national securities exchange or are primary dealers in U.S. Government Securities. In connection with transactions in repurchase agreements, it is the Trust's policy that the Master Portfolio receive, as collateral, securities whose market value, including accrued interest, at all times will be at least equal to 100% of the amount invested by the Master Portfolio in each repurchase agreement. If the seller defaults, and the value of the collateral declines, realization of the collateral by the Master Portfolio may be delayed or limited. WRITTEN OPTION ACCOUNTING The Master Portfolios may write (sell) call or put options for trading or hedging purposes. When a Master Portfolio writes an option, an amount equal to the premium received by the Master Portfolio is included in the Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. By writing the option, the Master Portfolio may become obligated during the term of the option to deliver or purchase the securities underlying the option at the exercise price if the option is exercised. Option contracts are valued at the average of the current bid and asked price reported on the day of the valuation. When an option expires on its stipulated expiration date or the Master Portfolio enters into a closing purchase transaction, the Master Portfolio realizes a gain or loss if the cost of the closing transaction differs from the premium received when the option was sold, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When an option is exercised, the premium originally received decreases the cost basis of the underlying security (or increases the proceeds on the security sold short) and the Master Portfolio realizes a gain or loss from the sale of the security (or closing of the short sale). As collateral for uncovered written options, the Master Portfolio is required under the 1940 Act to maintain 25 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) assets consisting of cash, cash equivalents or liquid securities. This collateral is required to be adjusted daily to reflect the market value of the purchase obligation for put options or the market value of the instrument underlying the contract for call options. FOREIGN CURRENCY TRANSLATIONS The books and records of the Master Portfolios are maintained in U.S. dollars. For the Master Portfolios, foreign currency transactions are translated into U.S. dollars on the following basis: (i) market values of investment securities and other assets and liabilities are translated at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on the respective dates of such transactions. The Master Portfolios do not isolate and treat as ordinary income that portion of the results of operations arising as a result of changes in the exchange rate from the fluctuations arising from changes in the market prices of securities held during the period. However, the Master Portfolios do isolate and treat as ordinary income the effect of changes in foreign exchange rates arising from actual foreign currency transactions and the effect of changes in foreign exchange rates arising between trade date and settlement date. RESTRICTED SECURITIES The Master Portfolios may invest in restricted securities. These securities are valued by the Master Portfolios after giving due consideration to pertinent factors including recent private sales, market conditions and the issuer's financial performance. The Master Portfolios have no right to require registration of unregistered securities. At June 30, 2003, the Master Portfolios did not hold any investment securities which were determined to be restricted pursuant to the guidelines adopted by the Board of Trustees. WHEN-ISSUED SECURITIES The Master Portfolios may purchase securities on a when-issued or delayed delivery basis. Although the purchase amounts of these securities are established at the time the purchaser enters into the agreement, these securities may be delivered and paid for at a future date. The Master Portfolios record purchases of when-issued securities and reflect the values of such securities in determining net asset value in the same manner as other portfolio securities. The Master Portfolios maintain at all times cash or other liquid assets in an amount at least equal to the amount of outstanding commitments for when-issued securities. 26 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) SECURITIES LENDING Each Master Portfolio may lend its portfolio securities to broker-dealers by entering directly into lending arrangements with such broker-dealers or indirectly through repurchase agreements to no more than 33 1/3% of its assets. Securities lending and repurchase transactions will be fully collateralized at all times with cash and/or short-term debt obligations. The Master Portfolios receive interest on the collateral received as well as a fee for the securities loaned. EXPENSE ALLOCATION Common expenses incurred by Feeder Funds are allocated among the Feeder Funds (i) based upon relative average net assets, (ii) as incurred on a specific identification basis, or (iii) equally among the Feeder Funds, depending on the nature of the expenditure. Each Feeder Fund records its proportionate share of the Master Portfolio's expenses on a daily basis. In addition, each Feeder Fund accrues its own separate expenses. Any cap on expenses includes Feeder Fund specific expenses as well as the expenses allocated from the Master Portfolio. FEDERAL INCOME TAXES Each Master Portfolio intends to qualify as a partnership for federal income tax purposes. Therefore, the Master Portfolios believe they will not be subject to any federal income tax on their income and net realized capital gains (if any). However, each investor in the Master Portfolios will report its allocable share of the Master Portfolio's income and capital gains for purposes of determining its federal income tax liability. It is the Feeder Funds' policy to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and the Feeder Funds intend to distribute investment company net taxable income and net capital gains to shareholders. Therefore, no federal income tax provision is recorded. Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. The character of distributions made during the year from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expenses and gain items for financial statement and tax purposes. Additionally, the Funds may utilize earnings and profits distributed to shareholders on redemption of shares as part of the dividends paid deduction for income tax purposes. 27 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) Where appropriate, reclassifications between capital accounts are made for such differences that are permanent in nature. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. OTHER Realized gains and losses on the sale of investments are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recognized on the accrual basis. Income, expenses (other than expenses attributable to a specific class) and realized and unrealized gains or losses on investments are allocated to each class of shares based on its relative net assets. 3. INVESTMENT ADVISER Effective April 28, 2000, the Trust has an Investment Advisory Agreement (the "Agreement") with Kinetics Asset Management, Inc. (the "Adviser"), with whom certain officers and trustees of the Trust are affiliated, to furnish investment advisory services to the Master Portfolios. Under the terms of the Agreement, the Master Portfolios compensate the Adviser for its management services at the annual rate of 1.25% of each Master Portfolio's average daily net assets, except for The Kinetics Government Money Market Portfolio, which compensates the Adviser at an annual rate of 0.50% of the Master Portfolio's average daily net assets. Prior to January 1, 2002, the Adviser had contractually agreed to pay all operating expenses in excess of the annual rates presented below as applied to each Feeder Fund's daily net assets. The expense cap includes Feeder Fund-specific expenses as well as the Master Portfolio's expenses allocated to the Feeder Fund. Under the terms of the Agreement, any Feeder Fund expenses waived or reimbursed by the Adviser may be recovered by the Adviser to the extent actual operating expenses for a subsequent period are less than the expense limitation caps at the time of the waiver or reimbursement. The Adviser intends to seek potential recovery of such amounts for a period of three years from the fiscal year in which such amounts were waived or reimbursed. Waivers and reimbursements by 28 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) the Adviser in years prior to 2002 which are subject to potential future recovery include:

2001 2000 ------- -------- Internet................................................ $ -- $462,775 Emerging................................................ $63,887 $ 15,222 Paradigm................................................ $45,940 $ 19,743 Medical................................................. $ -- $ 93,681 Small Cap............................................... $45,787 $ 11,899 Government.............................................. $44,751 $ --

Although the contractual Expense Waiver and Reimbursement Agreement expired on December 31, 2001, the Adviser has voluntarily agreed to continue to pay all operating expenses in excess of the annual rates represented below. The Adviser may discontinue the voluntary waiver at any time. For the six months ended June 30, 2003, the amounts earned by the Adviser and the reimbursed expenses for the Feeder Funds are as follows:

INTERNET EMERGING -------- -------- Annual Advisory Rate...................................... 1.25% 1.25% Annual Cap on Expenses -- Investor Class.................. -- 2.74% Annual Cap on Expenses -- Advisor Class A................. -- N/A Expenses Reimbursed by Adviser............................ $ -- $20,180

PARADIGM MEDICAL -------- ------- Annual Advisory Rate....................................... 1.25% 1.25% Annual Cap on Expenses -- Investor Class................... 2.74% -- Annual Cap on Expenses -- Advisor Class A.................. 2.99% -- Annual Cap on Expenses -- Advisor Class C.................. 3.49% N/A Expenses Reimbursed by Adviser............................. $ -- $ --

SMALL CAP GOVERNMENT --------- ---------- Annual Advisory Rate.................................. 1.25% 0.50% Annual Cap on Expenses -- Investor Class.............. 2.74% 1.25% Annual Cap on Expenses -- Advisor Class A............. 2.99% N/A Expenses Reimbursed by Adviser........................ $ -- $56,074

The Adviser receives a shareholder servicing fee from the Feeder Funds pursuant to a Shareholder Servicing Agreement in the amount equal to 0.25% of the Feeder Fund's average daily net assets. The Adviser is responsible for paying a portion of these shareholder servicing fees to various agents which have a written shareholder servicing agreement with the Adviser and who perform shareholder servicing functions and maintenance of shareholder accounts on behalf of their clients who own shares of the Feeder Funds. 29 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) The Company, on behalf of the Funds, has adopted two Retail Distribution Plans pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "12b-1 Plans"). One Plan is for Advisor Class A shares, while the other Plan is for Advisor Classes B & C shares. Under the first Plan, Advisor Class A shares may pay up to an annual rate of 0.50% of the average daily net asset value of such shares to the Distributor or other qualified recipients under the Plan. During the six months ended June 30, 2003, payments under such plan with respect to Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds were limited to 0.25% of the average daily net asset value of such shares of such Funds. During the six months ended June 30, 2003, the Advisor Class A shares of the Internet, Paradigm, Medical and Small Cap Funds incurred expenses of $14,891, $8,220, $2,051 and $618, respectively, pursuant to the 12b-1 Plan, for such shares. Under the second Plan, Advisor Classes B & C shares pay an annual rate of 0.75% of the average daily net asset value of such shares. During the six months ended June 30, 2003, Paradigm Class C shares incurred expenses of $2,167, pursuant to the 12b-1 Plan. Through June 30, 2003, the Funds had not issued any Advisor Class B shares. 4. INCOME TAXES At June 30, 2003, the Feeder Funds had accumulated net realized capital loss carryovers expiring in the following years.

FEEDER FUND 2010 2009 2008 2007 ----------- ------------ ----------- ---------- ----------- Internet............. $140,178,775 $58,617,473 $ -- $31,189,619 Emerging............. $ 2,635,505 $ 5,481,052 $2,615,474 $ -- Paradigm............. $ 357,103 $ -- $ 86,123 $ -- Medical.............. $ 2,056,578 $ -- $ -- $ -- Small Cap............ $ 1,437,670 $ -- $ -- $ --

To the extent that the Feeder Funds realize future net capital gains, those gains will be offset by any unused capital loss carryovers. At June 30, 2003, the following Feeder Funds deferred, on a tax basis, post- October losses of:

FEEDER FUND POST-OCTOBER LOSSES ----------- ------------------- Emerging................................................... $ 1,479 Paradigm................................................... 100,414 Small Cap.................................................. 121,796

For the six months ended June 30, 2003, the Feeder Funds did not pay any dividends or distributions. For the year ended December 31, 2002, the Medical Fund paid a short-term capital gain distribution of $0.03363 per 30 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) share or $56,921 to the Investor Class shares and $2,107 to the Advisor Class A shares which is characterized as ordinary income for income tax purposes. The Medical Fund paid a long-term capital gain distribution of $0.04291 per share or $72,620 to the Investor Class shares and $2,686 to the Advisor Class A shares. The Small Cap Fund paid a short-term capital gain distribution of $0.06727 per share or $36,678 to the Investor Class shares and $1,183 to the Advisor Class A shares which is characterized as ordinary income for income tax purposes. The Government Fund had dividends of $0.00217 per share or $176,234 which are characterized as ordinary income for income tax purposes. There were no tax undistributed amounts as of December 31, 2002. The tax components of dividends paid during the years ended December 31, 2002 and December 31, 2001, are:

MEDICAL SMALL CAP ----------------------------- ----------------------------- ORDINARY LONG-TERM ORDINARY LONG-TERM INCOME CAPITAL GAINS INCOME CAPITAL GAINS DISTRIBUTION DISTRIBUTION DISTRIBUTION DISTRIBUTION ------------ ------------- ------------ ------------- 2002...................... $59,028 $75,306 $37,861 $ -- 2001...................... $73,214 $ -- $ -- $ --

31 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE INTERNET FUND -------------------------------------------------------------------------------------- INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS ADVISOR CLASS A SIX MONTHS SIX MONTHS FOR THE FOR THE ENDED ENDED YEAR ENDED YEAR ENDED JUNE 30, 2003 JUNE 30, 2003 DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED) 2002 2002 -------------- --------------- -------------- --------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period.................. $ 16.69 $16.47 $ 21.80 $ 21.75 -------- ------ -------- ------- Income from Investment Operations: Net investment income (loss)......... 0.00(7) (0.02)(6) (0.08)(6) (0.12)(6) Net realized and unrealized gain (loss) on investments.............. 4.47 4.33 (5.03) (5.16) -------- ------ -------- ------- Total gain (loss) from investment operations...................... 4.47 4.31 (5.11) (5.28) -------- ------ -------- ------- Less Distributions: From net investment income........... -- -- -- -- From net realized gains.............. -- -- -- -- -------- ------ -------- ------- Total distributions.............. -- -- -- -- -------- ------ -------- ------- Net Asset Value, End of Period......... $ 21.16 $20.78 $ 16.69 $ 16.47 ======== ====== ======== ======= Total Return(5)........................ 26.78%(1) 26.17%(1) (23.44)% (24.28)% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)...... $256,488 $4,037 $189,618 $ 507 Ratio of expenses to average net assets: Before expense reimbursement....... 2.35%(2) 2.60%(2) 2.42% 2.67% After expense reimbursement........ 2.35%(2) 2.60%(2) 2.42% 2.67% Ratio of net investment income (loss) to average net assets: Before expense reimbursement....... 0.03%(2) (0.22)%(2) (0.41)% (0.66)% After expense reimbursement........ 0.03%(2) (0.22)%(2) (0.41)% (0.66)% Portfolio turnover rate................ N/A N/A N/A N/A

------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for the entire period. (4) Rate listed represents the portfolio turnover rate from January 1, 2000 through April 28, 2000 (date on which Feeder Fund entered into a master-feeder fund structure). (5) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (6) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (7) The amount listed is less than $0.005 per share. See Notes to the Financial Statements. 32

THE INTERNET FUND --------------------------------------------------------------------------------------------------------------- ADVISOR CLASS A INVESTOR CLASS APRIL 26, INVESTOR CLASS INVESTOR CLASS INVESTOR CLASS FOR THE 2001(+) FOR THE FOR THE FOR THE YEAR ENDED THROUGH YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 1999 1998 -------------- --------------- -------------- -------------- -------------- $ 24.12 $23.50 $ 49.73 $ 15.72 $ 5.31 -------- ------ -------- ---------- ------- (0.17) (0.12)(6) (0.76) (0.30) (0.08) (2.15) (1.63) (24.85) 34.33 10.50 -------- ------ -------- ---------- ------- (2.32) (1.75) (25.61) 34.03 10.42 -------- ------ -------- ---------- ------- -- -- -- -- -- -- -- -- (0.02) (0.01) -------- ------ -------- ---------- ------- -- -- -- (0.02) (0.01) -------- ------ -------- ---------- ------- $ 21.80 $21.75 $ 24.12 $ 49.73 $ 15.72 ======== ====== ======== ========== ======= (9.62)% (7.45)%(1) (51.50)% 216.50% 196.14% $297,793 $ 975 $432,978 $1,163,097 $22,159 2.37% 2.62%(2) 2.06% 2.00% 3.08% 2.37% 2.62%(2) 2.00% 2.00% 3.08% (0.61)% (0.86)%(2) (1.49)% (1.29)% (2.92)% (0.61)% (0.86)%(2) (1.43)% (1.29)% (2.92)% N/A N/A 21%(4) 89% 80%

See Notes to the Financial Statements. 33 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE INTERNET EMERGING GROWTH FUND ------------------------------------------------------------ SIX MONTHS ENDED FOR THE FOR THE FOR THE JUNE 30, YEAR ENDED YEAR ENDED YEAR ENDED 2003 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 2002 2001 2000 ------------ ------------ ------------ ------------ PER SHARE DATA(1) Net Asset Value, Beginning of Period.... $ 3.24 $ 4.30 $ 3.69 $10.00 ------ ------ ------ ------ Income from Investment Operations: Net investment loss.... (0.01) (0.08) (0.03) (0.03) Net realized and unrealized gain (loss) on investments.......... 0.50 (0.98) 0.64 (6.28) ------ ------ ------ ------ Total gain (loss) from investment operations....... 0.49 (1.06) 0.61 (6.31) ------ ------ ------ ------ Less Distributions: From net investment income............... -- -- -- -- From net realized gains................ -- -- -- -- ------ ------ ------ ------ Total distributions.... -- -- -- -- ------ ------ ------ ------ Net Asset Value, End of Period................. $ 3.73 $ 3.24 $ 4.30 $ 3.69 ====== ====== ====== ====== Total Return............. 15.12%(3) (24.65)% 16.53% (63.10)% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)................ $4,428 $3,338 $5,277 $4,378 Ratio of expenses to average net assets: Before expense reimbursement...... 3.93%(4) 3.78% 4.17% 3.33% After expense reimbursement...... 2.74%(4) 2.74% 2.74% 2.00% Ratio of net investment loss to average net assets: Before expense reimbursement...... (1.95)%(4) (3.03)% (2.09)% (1.76)% After expense reimbursement...... (0.76)%(4) (1.99)% (0.66)% (0.43)% Portfolio turnover rate................... N/A N/A N/A 17%(2)

------------------ (1) Information presented relates to a share of capital stock outstanding for the entire period. (2) Rate listed represents the portfolio turnover rate from January 1, 2000 through April 28, 2000 (date on which Feeder Fund entered into a master-feeder fund structure). (3) Not annualized. (4) Annualized. See Notes to the Financial Statements. 34 (This page intentionally left blank) 35 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE PARADIGM FUND -------------------------------------------------- INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C SIX MONTHS SIX MONTHS SIX MONTHS ENDED ENDED ENDED JUNE 30, 2003 JUNE 30, 2003 JUNE 30, 2003 (UNAUDITED) (UNAUDITED) (UNAUDITED) -------------- --------------- --------------- PER SHARE DATA(1) Net Asset Value, Beginning of Period............................... $ 10.12 $10.07 $10.05 ------- ------ ------ Income from Investment Operations: Net investment income (loss)...................... 0.04(7) 0.02 (0.01) Net realized and unrealized gain (loss) on investments..................................... 2.06 2.07 2.06 ------- ------ ------ Total gain (loss) from investment operations................................... 2.10 2.09 2.05 ------- ------ ------ Less Distributions: From net investment income........................ -- -- -- From net realized gains........................... -- -- -- ------- ------ ------ Total distributions........................... -- -- -- ------- ------ ------ Net Asset Value, End of Period...................... $ 12.22 $12.16 $12.10 ======= ====== ====== Total Return(6)..................................... 20.75%(4) 20.75%(4) 20.40%(4) SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)................... $19,890 $9,925 $ 726 Ratio of expenses to average net assets: Before expense reimbursement.................... 2.40%(5) 2.65%(5) 3.15%(5) After expense reimbursement..................... 2.40%(5) 2.65%(5) 3.15%(5) Ratio of net investment income (loss) to average net assets: Before expense reimbursement.................... 0.64%(5) 0.39%(5) (0.11)%(5) After expense reimbursement..................... 0.64%(5) 0.39%(5) (0.11)%(5) Portfolio turnover rate............................. N/A N/A N/A

------------------ (+) Commencement of operations. (1) Information presented relates to a share of capital stock outstanding for the entire period. (2) Rate listed represents the portfolio turnover rate from January 1, 2000 through April 28, 2000 (date on which Feeder Fund entered into a master-feeder fund structure). (3) The amount is less than $0.005 per share. (4) Not annualized. (5) Annualized. (6) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (7) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. See Notes to the Financial Statements. 36

THE PARADIGM FUND ------------------------------------------------------------------------------------------------------------- ADVISOR CLASS A INVESTOR CLASS ADVISOR CLASS A ADVISOR CLASS C INVESTOR CLASS APRIL 26, 2001 INVESTOR CLASS FOR THE FOR THE JUNE 28, 2002(+) FOR THE (+) FOR THE YEAR ENDED YEAR ENDED THROUGH YEAR ENDED THROUGH YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2002 2002 2002 2001 2001 2000 -------------- --------------- ---------------- -------------- ---------------- -------------- $10.61 $10.58 $10.64 $10.40 $10.42 $10.00 ------ ------ ------ ------ ------ ------ (0.14) (0.17) (0.11) (0.13) (0.10)(7) (0.00)(3) (0.35) (0.34) (0.48) 0.34 0.26 0.40 ------ ------ ------ ------ ------ ------ (0.49) (0.51) (0.59) 0.21 0.16 0.40 ------ ------ ------ ------ ------ ------ -- -- -- -- -- -- -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ -- -- -- -- -- -- ------ ------ ------ ------ ------ ------ $10.12 $10.07 $10.05 $10.61 $10.58 $10.40 ====== ====== ====== ====== ====== ====== (4.62)% (4.82)% (5.55)%(4) 2.02% 1.54%(4) 4.00% $5,044 $4,943 $ 519 $4,817 $4,091 $3,803 2.97% 3.22% 3.72%(5) 3.47% 3.72%(5) 4.96% 2.74% 2.99% 3.49%(5) 2.74% 2.99%(5) 2.00% (1.61)% (1.86)% (2.36)%(5) (1.91)% (2.16)%(5) (3.02)% (1.38)% (1.63)% (2.13)%(5) (1.18)% (1.43)%(5) (0.06)% N/A N/A N/A N/A N/A 5%(2)

See Notes to the Financial Statements. 37 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE MEDICAL FUND ---------------------------------------------------------------------------------------- INVESTOR CLASS ADVISOR CLASS A SIX MONTHS SIX MONTHS INVESTOR CLASS ADVISOR CLASS A ENDED ENDED FOR THE FOR THE JUNE 30, JUNE 30, YEAR ENDED YEAR ENDED 2003 2003 DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED) 2002 2002 -------------- --------------- -------------- --------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period......................... $ 12.72 $12.61 $ 18.06 $18.01 ------- ------ ------- ------ Income from Investment Operations: Net investment loss............ (0.08) (0.10)(6) (0.21) (0.24) Net realized and unrealized gain (loss) on investments... 2.37 2.35 (5.05) (5.08) ------- ------ ------- ------ Total gain (loss) from investment operations.... 2.29 2.25 (5.26) (5.32) ------- ------ ------- ------ Less Distributions: From net investment income..... -- -- -- -- From net realized gains........ -- -- (0.08) (0.08) ------- ------ ------- ------ Total distributions........ -- -- (0.08) (0.08) ------- ------ ------- ------ Net Asset Value, End of Period... $ 15.01 $14.86 $ 12.72 $12.61 ======= ====== ======= ====== Total Return(5).................. 18.00%(1) 17.84%(1) (29.14)% (29.56)% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)........................ $25,982 $ 724 $22,604 $ 794 Ratio of expenses to average net assets: Before expense reimbursement.............. 2.46%(2) 2.71%(2) 2.55% 2.80% After expense reimbursement.............. 2.46%(2) 2.71%(2) 2.55% 2.80% Ratio of net investment loss to average net assets: Before expense reimbursement.............. (1.22)%(2) (1.47)%(2) (1.49)% (1.74)% After expense reimbursement.............. (1.22)%(2) (1.47)%(2) (1.49)% (1.74)% Portfolio turnover rate.......... N/A N/A N/A N/A

------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for the entire period. (4) Rate listed represents the portfolio turnover rate from January 1, 2000 through April 28, 2000 (date on which Feeder Fund entered into a master-feeder fund structure). (5) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (6) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. See Notes to the Financial Statements. 38

THE MEDICAL FUND -------------------------------------------------------------------------------- INVESTOR CLASS INVESTOR CLASS ADVISOR CLASS A INVESTOR CLASS SEPTEMBER 30, FOR THE APRIL 26, 2001(+) FOR THE 1999(+) YEAR ENDED THROUGH YEAR ENDED THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001 2000 1999 -------------- ----------------- -------------- -------------- $ 20.98 $18.24 $ 13.35 $10.00 ------- ------ ------- ------ (0.25) (0.17)(6) (0.15) (0.02) (2.64) (0.03) 7.78 3.37 ------- ------ ------- ------ (2.89) (0.20) 7.63 3.35 ------- ------ ------- ------ -- -- -- -- (0.03) (0.03) -- -- ------- ------ ------- ------ (0.03) (0.03) -- -- ------- ------ ------- ------ $ 18.06 $18.01 $ 20.98 $13.35 ======= ====== ======= ====== (13.77)% (1.09)%(1) 57.15% 33.50%(1) $40,416 $1,203 $63,314 $6,944 2.28% 2.53%(2) 2.21% 5.99%(2) 2.28% 2.53%(2) 2.00% 2.00%(2) (1.17)% (1.42)%(2) (1.24)% (5.24)%(2) (1.17)% (1.42)%(2) (1.03)% (1.25)%(2) N/A N/A 1%(4) 1%

See Notes to the Financial Statements. 39 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE SMALL CAP OPPORTUNITIES FUND -------------------------------------------------------------------------- INVESTOR CLASS ADVISOR CLASS A SIX MONTHS SIX MONTHS INVESTOR CLASS ADVISOR CLASS A ENDED ENDED FOR THE FOR THE JUNE 30, JUNE 30, YEAR ENDED YEAR ENDED 2003 2003 DECEMBER 31, DECEMBER 31, (UNAUDITED) (UNAUDITED) 2002 2002 -------------- --------------- -------------- --------------- PER SHARE DATA(3) Net Asset Value, Beginning of Period............ $ 10.04 $10.03 $ 14.50 $ 14.50 ------- ------ -------- -------- Income from Investment Operations: Net investment income (loss)... 0.14(6) 0.12(6) (0.18)(6) (0.20)(6) Net realized and unrealized gain (loss) on investments... 2.47 2.47 (4.21) (4.20) ------- ------ -------- -------- Total gain (loss) from investment operations.... 2.61 2.59 (4.39) (4.40) ------- ------ -------- -------- Less Distributions: From net investment income..... -- -- -- -- From net realized gains........ -- -- (0.07) (0.07) ------- ------ -------- -------- Total distributions........ -- -- (0.07) (0.07) ------- ------ -------- -------- Net Asset Value, End of Period... $ 12.65 $12.62 $ 10.04 $ 10.03 ======= ====== ======== ======== Total Return(5).................. 26.00%(1) 25.82%(1) (30.28)% (30.35)% SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's)........................ $31,015 $1,134 $ 3,313 $ 172 Ratio of expenses to average net assets: Before expense reimbursement.............. 2.28%(2) 2.53%(2) 2.95% 3.20% After expense reimbursement.............. 2.28%(2) 2.53%(2) 2.74% 2.99% Ratio of net investment income (loss) to average net assets: Before expense reimbursement.............. 2.29%(2) 2.04%(2) (1.59)% (1.84)% After expense reimbursement.............. 2.29%(2) 2.04%(2) (1.38)% (1.63)% Portfolio turnover rate.......... N/A N/A N/A N/A

------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for the entire period. (4) Rate listed represents the portfolio turnover rate from January 1, 2000 through April 28, 2000 (date on which Feeder Fund entered into a master-feeder fund structure). (5) The total return calculation does not reflect the 5.75% front end sales charge on Advisor Class A shares. (6) Net investment income per share represents net investment income divided by the average shares outstanding throughout the period. (7) The amount listed is less than $0.005 per share. See Notes to the Financial Statements. 40

THE SMALL CAP OPPORTUNITIES FUND --------------------------------------------------------- INVESTOR CLASS INVESTOR CLASS MARCH 20, FOR THE 2000(+) YEAR ENDED ADVISOR CLASS A THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31, 2001 2001(+) 2000 -------------- --------------- -------------- $11.10 $14.50 $10.00 ------ ------ ------ (0.19)(6) -- (0.00)(7) 3.59 -- 1.10 ------ ------ ------ 3.40 -- 1.10 ------ ------ ------ -- -- -- -- -- -- ------ ------ ------ -- -- -- ------ ------ ------ $14.50 $14.50 $11.10 ====== ====== ====== 30.63% 0.00%(1) 11.00%(1) $9,266 $ 1 $ 517 3.73% N/A 24.50%(2) 2.74% N/A 2.00%(2) (2.37)% N/A (22.59)%(2) (1.38)% N/A (0.09)%(2) N/A N/A 8%(4)

See Notes to the Financial Statements. 41 KINETICS MUTUAL FUNDS, INC. -- FEEDER FUNDS FINANCIAL HIGHLIGHTS

THE KINETICS GOVERNMENT MONEY MARKET FUND --------------------------------------------------------- SIX MONTHS FEBRUARY 3, ENDED FOR THE FOR THE 2000(+) JUNE 30, YEAR ENDED YEAR ENDED THROUGH 2003 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 2002 2001 2000 ------------ ------------ ------------ ------------ PER SHARE DATA(3) Net Asset Value, Beginning of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 ------- -------- ------- ------- Income from Investment Operations: Net investment income...... -- 0.00(4) 0.02 0.04 Net realized and unrealized gain (loss) on investments.............. -- -- -- -- ------- -------- ------- ------- Total gain from investment operations........... -- 0.00(4) 0.02 0.04 ------- -------- ------- ------- Less Distributions: From net investment income................... -- (0.00)(4) (0.02) (0.04) From net realized gains.... -- -- -- -- ------- -------- ------- ------- Total distributions.... -- -- (0.02) (0.04) ------- -------- ------- ------- Net Asset Value, End of Period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 ======= ======== ======= ======= Total Return................. 0.00%(1) 0.22% 2.36% 4.20%(1) SUPPLEMENTAL DATA AND RATIOS Net assets, end of period (000's).................... $65,302 $128,657 $94,886 $21,532 Ratio of expenses to average net assets: Before expense reimbursement.......... 1.19%(2) 1.29% 1.35% 1.43%(2) After expense reimbursement.......... 1.02%(2) 1.23% 1.24% 1.25%(2) Ratio of net investment income (loss) to average net assets: Before expense reimbursement.......... (0.17)%(2) 0.13% 2.12% 4.61%(2) After expense reimbursement.......... 0.00%(2) 0.19% 2.23% 4.79%(2) Portfolio turnover rate...... N/A N/A N/A N/A

------------------ (+) Commencement of operations. (1) Not annualized. (2) Annualized. (3) Information presented relates to a share of capital stock outstanding for the entire period. (4) The amount listed is less than $0.005 per share. See Notes to the Financial Statements. 42 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

COMMON STOCKS -- 81.11%+ SHARES VALUE -------------------------------------------------------------------- ACCESS/BROADBAND -- 2.69%+ PrimaCom AG ADR*........................ 580,000 $ 197,200 UnitedGlobalCom, Inc. -- Class A*(2).... 1,140,000 5,893,800 United Pan-Europe Communications N.V. -- Class A ADR*(2)....................... 1,400,000 140,000 XM Satellite Radio Holdings, Inc. -- Class A*(2)........................... 72,000 795,600 ------------ 7,026,600 ------------ BUSINESS SERVICES -- 17.51%+ eSPEED, Inc. -- Class A*................ 1,200,000 23,712,000 Kroll, Inc.*............................ 775,000 20,971,500 Ritchie Bros. Auctioneers Incorporated*......................... 26,000 1,001,260 ------------ 45,684,760 ------------ COMPUTER HARDWARE/SOFTWARE -- 3.80%+ Comdisco Holding Company, Inc.*......... 96,800 9,583,200 Leapfrog Enterprises, Inc.*(2).......... 10,000 318,100 Psion PLC*.............................. 10,000 10,767 ------------ 9,912,067 ------------ COMPUTER SERVICES -- 2.64%+ CACI International, Inc. -- Class A*.... 150,000 5,145,000 Fidelity National Information Solutions, Inc.*(1)(2)........................... 67,000 1,747,360 ------------ 6,892,360 ------------ E-BUSINESS SERVICES -- 4.18%+ First Advantage Corporation -- Class A*(2)................................. 20,000 333,000 Harris Interactive, Inc.*............... 1,440,000 9,489,600 NetRatings, Inc.*....................... 120,000 1,096,800 ------------ 10,919,400 ------------ E-COMMERCE -- 11.59%+ CheckFree Corporation*(2)............... 644,900 17,954,016 Getty Images, Inc.*(1).................. 50,900 2,102,170 InterActiveCorp*(2)..................... 80,000 3,165,600 LendingTree, Inc.*(2)................... 150,000 3,672,000 LookSmart, Ltd.*........................ 50,000 141,500 MarketWatch.com, Inc.*(2)............... 244,000 2,039,840

See Notes to the Financial Statements. 43 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE -------------------------------------------------------------------- E-COMMERCE -- (CONTINUED) WebMD Corporation*(1)(2)................ 109,000 $ 1,180,470 ------------ 30,255,596 ------------ HOLDING COMPANY -- 7.20%+ Groupe Bruxelles Lambert S.A............ 210,000 9,501,608 Leucadia National Corporation*.......... 250,000 9,280,000 ------------ 18,781,608 ------------ INFRASTRUCTURE -- 5.01%+ Commonwealth Telephone Enterprises, Inc.*(2).............................. 180,000 7,914,600 Commonwealth Telephone Enterprises, Inc. -- Class B*...................... 14,000 644,000 Lynch Interactive Corporation*.......... 185,790 4,491,473 Sunshine PCS Corporation -- Class A*.... 149,890 37,473 ------------ 13,087,546 ------------ INTERNET SEARCH ENGINES -- 14.20%+ Netease.com, Inc. ADR*.................. 270,000 9,844,200 ProQuest Company*(2).................... 160,000 4,128,000 SINA Corp*(2)........................... 530,000 10,774,900 Sohu.com, Inc.*(2)...................... 360,000 12,297,600 ------------ 37,044,700 ------------ INTERNET TECHNOLOGY INFRASTRUCTURE -- 8.15%+ Level 3 Communications, Inc.*(2)........ 3,205,000 21,281,200 ------------ INTERNET TECHNOLOGY/SOFTWARE -- 2.56%+ BARRA, Inc.*(2)......................... 180,000 6,426,000 Lionbridge Technologies, Inc.*(2)....... 50,000 254,500 ------------ 6,680,500 ------------ MEDIA CONTENT -- 0.51%+ The Washington Post Company -- Class B..................................... 1,800 1,319,220 ------------ TITLE INSURANCE -- 1.06%+ Fidelity National Financial, Inc. ...... 90,000 2,768,400 ------------

See Notes to the Financial Statements. 44 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE -------------------------------------------------------------------- SECURITIES EXCHANGES -- 0.01%+ Nasdaq Stock Market Inc.*............... 3,000 $ 24,150 ------------ TOTAL COMMON STOCKS (cost $186,859,728)................... 211,678,107 ------------ PREFERRED STOCKS -- 2.38%+ -------------------------------------------------------------------- E-COMMERCE -- 2.38%+ InterActiveCorp, CLB, 1.990%, 2/4/2022.............................. 108,104 6,215,980 ------------ TOTAL PREFERRED STOCKS (cost $5,138,679)..................... 6,215,980 ------------ PRINCIPAL CORPORATE BONDS -- 1.48%+ AMOUNT -------------------------------------------------------------------- ACCESS/BROADBAND -- 0.52%+ UnitedGlobalCom, Inc., CLB, 10.750%, 2/15/2008*(+)......................... $ 2,000,000 1,360,000 INTERNET TECHNOLOGY INFRASTRUCTURE -- 0.96%+ Level 3 Communications, Inc., CLB, 0.000%, 3/15/2010*(+)................. 3,200,000 2,512,000 ------------ TOTAL CORPORATE BONDS (cost $3,644,545)..................... 3,872,000 ------------ CORPORATE BONDS -- CONVERTIBLE -- 7.40%+ -------------------------------------------------------------------- INTERNET TECHNOLOGY INFRASTRUCTURE -- 1.30%+ Level 3 Communications, Inc., CLB, 6.000%, 3/15/2010*(2)................. 4,600,000 3,381,000 ------------ VENTURE CAPITAL -- 6.10%+ Safeguard Scientifics, Inc., CLB, 5.000%, 6/15/2006*.................... 20,300,000 15,935,500 ------------ TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $18,293,226).................... 19,316,500 ------------

See Notes to the Financial Statements. 45 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

RIGHTS -- 1.12%+ SHARES VALUE -------------------------------------------------------------------- CONTINGENT VALUE RIGHTS -- 1.12%+ Comdisco Holding Company, Inc.#......... 9,300,049 $ 2,929,515 ------------ TOTAL RIGHTS (cost $1,589,883).......... 2,929,515 ------------

CALL OPTIONS PURCHASED -- 0.15%+ CONTRACTS -------------------------------------------------------------------- Netease.com, Inc. Expiring September 2003 at $35.00..... 180 106,200 SINA Corp Expiring September 2003 at $17.50..... 360 165,600 Sohu.com, Inc. Expiring September 2003 at $30.00..... 180 113,400 ------------ TOTAL CALL OPTIONS (cost $303,480)....................... 385,200 ------------ PUT OPTIONS PURCHASED -- 0.03%+ -------------------------------------------------------------------- eBAY, Inc. Expiring January 2004 at $30.00....... 50 1,125 Expiring January 2005 at $40.00....... 25 2,875 Expiring January 2005 at $70.00....... 25 14,250 ------------ 18,250 ------------ Electronic Arts, Inc. Expiring January 2005 at $50.00.... 50 15,875 Expiring January 2004 at $55.00.... 225 31,500 ------------ 47,375 ------------ TOTAL PUT OPTIONS (cost $190,825)....................... 65,625 ------------ PRINCIPAL AMOUNT SHORT-TERM INVESTMENTS -- 4.01%+ OR SHARES -------------------------------------------------------------------- DISCOUNT NOTES -- 4.01%+ Federal Home Loan Bank Discount Note,(1) 0.4000%, 7/1/2003..................... $10,454,000 10,454,000 ------------

See Notes to the Financial Statements. 46 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL AMOUNT OR SHARES VALUE -------------------------------------------------------------------- INVESTMENT COMPANIES -- 0.00%+ First American Prime Obligations Fund -- Class I............................... 623 $ 623 ------------ TOTAL SHORT-TERM INVESTMENTS (cost $10,454,623).................... 10,454,623 ------------

INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING -- 20.80%+ -------------------------------------------------------------------- COMMERCIAL PAPER -- 0.99%+ UBS Finance Commercial Paper, 1.310%, 7/1/2003 (cost $2,581,279)............ $ 2,581,279 2,581,279 ------------ MONEY MARKET FUNDS -- 1.01%+ AIM Liquid Assets Portfolio -- Institutional Class...... 860,458 860,458 Merrill Lynch Premier Institutional Fund.................................. 1,781,006 1,781,006 ------------ TOTAL MONEY MARKET FUNDS (cost $2,641,464)..................... 2,641,464 ------------ REPURCHASE AGREEMENTS -- 18.80%+ CS First Boston Repurchase Agreement, 1.300%, 7/1/2003 (cost $14,627,780)(3)................. 14,627,780 14,627,780 ------------ CS First Boston Repurchase Agreement, 1.435%, 7/1/2003 (cost $34,418,305)(3)................. 34,418,305 34,418,305 ------------

See Notes to the Financial Statements. 47 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

VALUE -------------------------------------------------------------------- TOTAL REPURCHASE AGREEMENTS (cost $49,046,085).................... $ 49,046,085 ------------ TOTAL INVESTMENTS -- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $54,268,828).................... 54,268,828 ------------ TOTAL INVESTMENTS -- 118.48%+ (COST $280,743,817)................... $309,186,378 ============

------------------ * -- Non-income producing security. (+) -- Security has a stepped rate. The rate listed is as of June 30, 2003. + -- Calculated as a percentage of net assets. # -- Contingent value right (contingent upon profitability of company). ADR -- American Depository Receipts. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at June 30, 2003. Total loaned securities had a market value of $53,376,859 at June 30, 2003. (3) -- Collateralized by U.S. Government or U.S. Government Agency securities, U.S. Government Agency mortgage-backed securities, certificates of deposit or banker's acceptances. See Notes to the Financial Statements. 48 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

COMMON STOCKS -- 76.27%+ SHARES VALUE ------------------------------------------------------------------------- ACCESS/BROADBAND -- 2.52%+ UTStarcom, Inc.*(2)........................... 2,600 $ 92,482 XM Satellite Radio Holdings, Inc. -- Class A*(2)....................................... 1,700 18,785 ---------- 111,267 ---------- BUSINESS SERVICES -- 16.46%+ eSPEED, Inc. -- Class A*...................... 10,000 197,600 FactSet Research Systems Inc. ................ 400 17,620 Interactive Data Corporation*(2).............. 13,000 219,700 John H. Harland Company....................... 1,000 26,160 Register.com, Inc.*........................... 14,000 82,040 Valassis Communications, Inc.*................ 2,300 59,156 Websense, Inc.*(2)............................ 8,000 125,280 ---------- 727,556 ---------- COMPUTER HARDWARE/SOFTWARE -- 13.89%+ Comdisco Holding Company, Inc.*............... 6,200 613,800 ---------- COMPUTER SERVICES -- 4.92%+ Fidelity National Information Solutions, Inc.*....................................... 4,572 119,238 SI International, Inc.*....................... 7,500 98,250 ---------- 217,488 ---------- E-BUSINESS SERVICES -- 1.39%+ NetRatings, Inc.*............................. 6,700 61,238 ---------- INTERNET SEARCH ENGINES -- 6.22%+ Netease.com, Inc. ADR*........................ 2,500 91,150 SINA Corp*(2)................................. 4,500 91,485 Sohu.com, Inc.*............................... 2,700 92,232 ---------- 274,867 ---------- HOLDING COMPANY -- 5.19%+ Groupe Bruxelles Lambert S.A.................. 1,200 54,295 Naspers Limited ADR*.......................... 5,047 175,035 ---------- 229,330 ----------

See Notes to the Financial Statements. 49 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE ------------------------------------------------------------------------- INFRASTRUCTURE -- 8.52%+ Global Light Telecommunications, Inc.*........ 34,000 $ 7 IDT Corporation*.............................. 5,300 94,870 IDT Corporation -- Class B*(2)................ 5,300 93,280 ITXC Corp.*(2)................................ 2,000 5,220 Lynch Interactive Corporation*................ 6,100 147,467 RADWARE, Ltd.*................................ 2,000 34,260 Sunshine PCS Corporation -- Class A*.......... 6,000 1,500 ---------- 376,604 ---------- INTERNET TECHNOLOGY/HARDWARE -- 1.25%+ CompuCom Systems, Inc.*....................... 12,200 55,144 ---------- INTERNET TECHNOLOGY INFRASTRUCTURE -- 8.71%+ Level 3 Communications, Inc.*................. 58,000 385,120 ---------- INTERNET TECHNOLOGY/SOFTWARE -- 5.59%+ ActivCard Corp.*.............................. 7,500 70,500 BARRA, Inc.*.................................. 2,000 71,400 Gemstar -- TV Guide International, Inc.*...... 5,000 25,450 OneSource Information Services, Inc.*......... 300 2,238 ProQuest Company*(2).......................... 3,000 77,400 ---------- 246,988 ---------- MANUFACTURING -- 0.01%+ Morgan Group Holding Company*................. 6,100 488 ---------- MEDIA CONTENT -- 0.12%+ Ascent Media Group, Inc.*(2).................. 4,400 5,456 ---------- TELECOMMUNICATIONS -- 1.48%+ Warwick Valley Telephone Company.............. 800 65,632 ---------- TOTAL COMMON STOCKS (cost $4,195,748)........................... 3,370,978 ----------

See Notes to the Financial Statements. 50 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL CORPORATE BONDS -- 1.36%+ AMOUNT VALUE ------------------------------------------------------------------------- INFRASTRUCTURE -- 1.36%+ Corning Incorporated, 6.000%, 8/15/2003....... $ 60,000 $ 60,075 ---------- TOTAL CORPORATE BONDS (cost $60,000).............................. 60,075 ----------

CORPORATE BONDS -- CONVERTIBLE -- 4.86%+ ------------------------------------------------------------------------- FINANCE -- 2.20%+ E*TRADE Group, Inc., CLB, 6.000%, 2/1/2007.... 100,000 97,000 ---------- INFRASTRUCTURE -- 2.66%+ Conexant Systems, Inc., CLB, 4.000%, 2/1/2007.................................... 150,000 117,750 ---------- TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $159,319)............................. 214,750 ----------

RIGHTS -- 3.66%+ SHARES ------------------------------------------------------------------------- CONTINGENT VALUE RIGHTS -- 3.66%+ Comdisco Holding Company, Inc.#............... 514,000 161,910 ---------- TOTAL RIGHTS (cost $200,423).................. 161,910 ----------

PRINCIPAL SHORT-TERM INVESTMENTS -- 11.91%+ AMOUNT ------------------------------------------------------------------------- DISCOUNT NOTES -- 6.42%+ Federal Home Loan Bank Discount Note, 0.4000%, 7/1/2003.................................... $284,000 284,000 ---------- VARIABLE RATE DEMAND NOTES** -- 5.49%+ American Family, 0.8510%...................... 74,549 74,549 Wisconsin Corporate Central Credit Union, 0.6975%..................................... 70,843 70,843 U.S. Bank, N.A., 0.7775%...................... 97,234 97,234 ---------- 242,626 ---------- TOTAL SHORT-TERM INVESTMENTS (cost $526,626)............................. 526,626 ----------

See Notes to the Financial Statements. 51 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET EMERGING GROWTH PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

INVESTMENTS PURCHASED WITH CASH PRINCIPAL PROCEEDS FROM SECURITIES LENDING -- AMOUNT 10.66%+ OR SHARES VALUE ------------------------------------------------------------------------- COMMERCIAL PAPER -- 0.51%+ UBS Finance Commercial Paper, 1.310%, 7/1/2003 (cost $22,398).............................. $ 22,398 $ 22,398 ---------- MONEY MARKET FUNDS -- 0.52%+ AIM Liquid Assets Portfolio -- Institutional Class....................................... 7,466 7,466 Merrill Lynch Premier Institutional Fund...... 15,454 15,454 ---------- TOTAL MONEY MARKET FUNDS (cost $22,920).............................. 22,920 ---------- REPURCHASE AGREEMENTS -- 9.63%+ CS First Boston Repurchase Agreement, 1.300%, 7/1/2003 (Cost $126,928)(3)................. 126,928 126,928 CS First Boston Repurchase Agreement, 1.435%, 7/1/2003 (Cost $298,654)(3)................. 298,654 298,654 ---------- TOTAL REPURCHASE AGREEMENTS (cost $425,582)............................. 425,582 ---------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $470,900)............................. 470,900 ---------- TOTAL INVESTMENTS -- 108.72%+ (COST $5,613,016)........................... $4,805,239 ==========

------------------ * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of June 30, 2003. # -- Contingent value right (contingent upon profitability of company). ADR -- American Depository Receipts. + -- Calculated as a percentage of net assets. (2) -- This security or a portion of this security was out on loan at June 30, 2003. Total loaned securities had a market value of $459,744 at June 30, 2003. (3) -- Collateralized by U.S. Government or U.S. Government Agency securities, U.S. Government Agency mortgage-backed securities, certificates of deposit or banker's acceptances. See Notes to the Financial Statements. 52 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

COMMON STOCKS -- 77.06%+ SHARES VALUE ------------------------------------------------------------------------ AUTO INSURANCE -- 0.86%+ The Progressive Corporation................ 3,600 $ 263,160 ----------- BEVERAGES -- 0.01%+ Taittinger S.A............................. 25 3,302 ----------- BUSINESS SERVICES -- 0.09%+ Moody's Corporation........................ 500 26,355 ----------- DIVERSIFIED OPERATIONS -- 0.08%+ Brascan Corporation -- Class A............. 1,000 24,560 ----------- ENERGY-EXPLORATION & PRODUCTION -- 1.91%+ CNOOC Limited ADR.......................... 6,000 178,200 EnCana Corp................................ 1,800 69,066 Suncor Energy, Inc. ....................... 18,000 337,500 ----------- 584,766 ----------- ENERGY-INTEGRATED -- 7.27%+ China Petroleum and Chemical Corporation ADR*..................................... 32,000 772,800 PetroChina Company Limited ADR(2).......... 48,000 1,449,600 ----------- 2,222,400 ----------- ENERGY-PIPELINE -- 9.41%+ El Paso Corporation(2)..................... 180,000 1,454,400 The Williams Companies, Inc. .............. 180,000 1,422,000 ----------- 2,876,400 ----------- FINANCE -- 2.66%+ Deutsche Boerse AG......................... 400 21,084 Euronext NV................................ 9,600 237,023 H&R Block, Inc. ........................... 4,000 173,000 London Stock Exchange PLC.................. 8,000 44,884 M&T Bank Corporation....................... 4,000 336,880 ----------- 812,871 ----------- HOLDING COMPANIES -- 10.01%+ Berkshire Hathaway Inc. -- Class B*........ 540 1,312,200 Groupe Bruxelles Lambert S.A............... 12,000 542,949 Leucadia National Corporation*............. 18,000 668,160 Pargesa Holding AG -- Class B.............. 48 97,843 Wesco Financial Corporation................ 1,400 436,800 ----------- 3,057,952 -----------

See Notes to the Financial Statements. 53 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE ------------------------------------------------------------------------ HOSPITALITY -- 0.02%+ Societe du Lourve.......................... 100 $ 6,132 ----------- INFRASTRUCTURE -- 3.32%+ China Mobile Limited ADR................... 24,000 282,480 China Telecom Corporation Limited ADR*..... 20,000 454,800 Chian Unicom Limited ADR................... 40,000 277,200 ----------- 1,014,480 ----------- INTERNET TECHNOLOGY INFRASTRUCTURE --1.83%+ Level 3 Communications, Inc.*(2)........... 84,000 557,760 ----------- MEDIA CONTENT -- 2.86%+ Dow Jones & Company, Inc. ................. 100 4,303 Meredith Corporation....................... 3,000 132,000 Pearson PLC ADR............................ 1,175 11,280 The E.W. Scripps Company -- Class A........ 5,000 443,600 The New York Times Company -- Class A...... 600 27,300 The Walt Disney Company.................... 1,850 36,538 The Washington Post Company -- Class B..... 300 219,870 ----------- 874,891 ----------- MINING -- 5.31%+ Newmont Mining Corporation................. 50,000 1,623,000 ----------- PROPERTY/CASUALTY INSURANCE-DIVERSIFIED -- 7.33%+ Alleghany Corporation*..................... 1,800 343,800 White Mountains Insurance Group, Ltd....... 4,800 1,896,000 ----------- 2,239,800 ----------- PUBLISHING -- 0.86%+ John Wiley & Sons, Inc. -- Class B......... 10,000 262,500 ----------- REAL ESTATE DEVELOPMENT -- 0.18%+ Texas Pacific Land Trust................... 1,200 56,040 ----------- RE-INSURANCE -- 5.58%+ Montpelier Re Holdings, Ltd.*.............. 54,000 1,706,400 ----------- SECURITIES EXCHANGES -- 0.05%+ The Chicago Mercantile Exchange............ 200 13,926 ----------- SPECIALTY INSURANCE -- 1.01%+ Markel Corporation*(2)..................... 1,200 307,200 -----------

See Notes to the Financial Statements. 54 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE ------------------------------------------------------------------------ TITLE INSURANCE -- 2.26%+ Fidelity National Financial, Inc.(2)....... 22,500 $ 692,100 ----------- UTILITIES-DIVERSIFIED -- 6.40%+ CenterPoint Energy, Inc. .................. 240,000 1,956,000 ----------- UTILITIES-ELECTRIC -- 7.75%+ Edison International*...................... 36,000 591,480 PG&E Corporation*.......................... 72,000 1,522,800 Texas Genco Holdings, Inc. ................ 1,200 27,900 TXU Corp................................... 10,000 224,500 ----------- 2,366,680 ----------- TOTAL COMMON STOCKS (cost $20,043,785)..... 23,548,675 -----------

PREFERRED STOCKS -- 0.81%+ ------------------------------------------------------------------------ ENERGY-PIPELINE -- 0.16%+ The Williams Companies, Inc., Conv, 9.000%, 2/16/2005................................ 4,000 49,400 ----------- UTILITES-ELECTRIC -- 0.65%+ Edison International, CLB, 8.600%, 10/29/2029*.............................. 400 11,440 Pacific Gas and Electric Company -- Series B*....................................... 600 13,794 Pacific Gas and Electric Company -- Series D, CLB, 5.000%, 07/14/2003*.............. 1,600 35,040 Pacific Gas and Electric Company -- Series E, CLB, 5.000%, 07/14/2003*.............. 800 17,624 Pacific Gas and Electric Company -- Series G, CLB, 4.800%, 7/14/2003*............... 1,200 26,160 Pacific Gas and Electric Company -- Series H, CLB, 4.500%, 07/14/2003*.............. 1,800 39,600 Pacific Gas and Electric Company -- Series I, CLB, 4.360%, 07/14/2003*.............. 2,200 48,840 Pacific Gas and Electric Company -- Series U, CLB, 7.040%, 7/14/2003*............... 200 5,820 ----------- 198,318 ----------- TOTAL PREFERRED STOCKS (cost $166,644)..... 247,718 -----------

See Notes to the Financial Statements. 55 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL CORPORATE BONDS -- 5.22%+ AMOUNT VALUE ------------------------------------------------------------------------ FINANCE -- 2.14%+ The FINOVA Group, Inc., 7.500%, 11/15/2009............................... $1,500,000 $ 652,500 INTERNET TECHNOLOGY INFRASTRUCTURE -- 3.08%+ Level 3 Communications, Inc., CLB, 0.000%, 3/15/2010*(+)............................ 1,200,000 942,000 ----------- TOTAL CORPORATE BONDS (cost $1,375,449).... 1,594,500 -----------

CORPORATE BONDS -- CONVERTIBLE -- 1.19%+ ------------------------------------------------------------------------ REAL ESTATE DEVELOPMENT -- 1.19%+ Trizec Hahn Corporation, CLB, 3.000%, 1/29/2021................................ 600,000 364,500 ----------- TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $402,141)................................ 364,500 -----------

PUT OPTIONS PURCHASED -- 0.08%+ CONTRACTS ------------------------------------------------------------------------ The Kroger Co. Expiring January 2005 at $10.00.......... 40 2,000 Expiring January 2006 at $10.00.......... 30 2,700 Expiring January 2005 at $15.00.......... 10 1,800 Expiring January 2006 at $12.50.......... 80 12,400 Expiring January 2006 at $20.00.......... 10 5,100 ----------- TOTAL PUT OPTIONS PURCHASED (cost $27,433)................................. 24,000 -----------

PRINCIPAL SHORT-TERM INVESTMENTS -- 14.56%+ AMOUNT ------------------------------------------------------------------------ DISCOUNT NOTES -- 14.56%+ Federal Home Loan Bank Discount Note 0.4000%, 07/01/2003(1)................... $4,450,000 4,450,000 ----------- VARIABLE RATE DEMAND NOTES** -- 0.00%+ U.S. Bank, N.A., 0.7775%................... 1,033 1,033 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $4,451,033).............................. 4,451,033 -----------

See Notes to the Financial Statements. 56 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

INVESTMENTS PURCHASED WITH CASH PRINCIPAL PROCEEDS FROM SECURITIES AMOUNT LENDING -- 4.56%+ OR SHARES VALUE ------------------------------------------------------------------------ COMMERCIAL PAPER -- 0.22%+ UBS Finance Commercial Paper, 1.310%, 07/01/2003 (cost $66,229)................ $ 66,229 $ 66,229 ----------- MONEY MARKET FUNDS -- 0.22%+ AIM Liquid Assets Portfolio -- Institutional Class......... 22,077 22,077 Merrill Lynch Premier Institutional Fund... 45,696 45,696 ----------- TOTAL MONEY MARKET FUNDS (cost $67,773).... 67,773 ----------- REPURCHASE AGREEMENTS -- 4.12%+ CS First Boston Repurchase Agreement, 1.300%, 7/1/2003 (cost $375,312)(3)...... 375,312 375,312 CS First Boston Repurchase Agreement, 1.435%, 7/1/2003 (cost $883,086)(3)...... 883,086 883,086 ----------- TOTAL REPURCHASE AGREEMENTS (cost $1,258,398)........................ 1,258,398 ----------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $1,392,400)................ 1,392,400 ----------- TOTAL INVESTMENTS -- 103.48%+ (COST $27,858,885)....................... $31,622,826 ===========

------------------ * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of June 30, 2003. (+) -- Security has a stepped rate. The rate listed is as of June 30, 2003. ADR -- American Depository Receipts. + -- Calculated as a percentage of Net Assets. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at June 30, 2003. Total loaned securities had a market value of $1,329,856 at June 30, 2003. (3) -- Collateralized by U.S. Government or U.S. Government Agency securities, U.S. Government Agency mortgage-backed securities, certificates of deposit or banker's acceptances. See Notes to the Financial Statements. 57 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

COMMON STOCKS -- 75.19%+ SHARES VALUE ---------------------------------------------------------------------- AGRICULTURAL OPERATIONS -- 0.40%+ Monsanto Company(2)......................... 4,915 $ 106,361 ----------- BIOMEDICAL -- 32.56%+ Amgen, Inc.*................................ 9,800 651,112 Antigenics, Inc.*(2)........................ 892 10,276 AVAX Technologies, Inc.*.................... 50,000 12,000 Biogen, Inc.*............................... 15,000 570,000 Biomira, Inc.*(2)........................... 37,000 50,690 Cell Genesys, Inc.*......................... 11,725 101,304 Chiron Corporation*......................... 33,000 1,442,760 DeCODE genetics, Inc.*...................... 7,000 21,840 EntreMed, Inc.*(2).......................... 11,000 45,650 Genencor International, Inc.*(2)............ 19,000 312,930 Genentech, Inc.*(1)......................... 19,480 1,404,898 Genzyme Corporation*(2)..................... 20,000 836,000 Genzyme Molecular Oncology*................. 17,000 39,950 Human Genome Sciences, Inc.*................ 17,000 216,240 IDEC Pharmaceuticals Corporation*(2)........ 34,000 1,156,000 ILEX Oncology, Inc.*........................ 29,000 562,890 Isis Pharmaceuticals, Inc.*(2).............. 5,000 26,500 Medarex, Inc.*(2)........................... 14,000 92,260 Millennium Pharmaceuticals, Inc.*........... 20,296 319,256 NeoRx Corporation*.......................... 27,000 91,503 Onyx Pharmaceuticals, Inc.*(2).............. 12,000 147,960 Progenics Pharmaceuticals, Inc.*............ 3,200 48,192 Protein Design Labs, Inc.*.................. 12,200 167,760 Savient Pharmaceuticals, Inc.*.............. 33,000 153,120 Sirna Therapeutics, Inc.*................... 2,168 19,100 SuperGen, Inc.*(2).......................... 14,000 75,600 Targeted Genetics Corporation*.............. 10,000 18,200 Tularik, Inc.*.............................. 8,000 79,520 Vical Incorporated*......................... 8,500 36,975 ----------- 8,710,486 ----------- CHEMICALS-DIVERSIFIED -- 0.40%+ Akzo Nobel N.V. ADR......................... 4,000 106,600 ----------- MEDICAL LABS/TESTING SERVICES -- 1.37%+ IMPATH, Inc.*(2)............................ 26,000 367,640 -----------

See Notes to the Financial Statements. 58 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE ---------------------------------------------------------------------- PHARMACEUTICALS -- 40.46%+ Abbott Laboratories......................... 17,000 $ 743,920 Atlanta AG ADR.............................. 12,000 744,000 Aventis S.A. ADR(1)......................... 12,000 656,400 Bristol-Meyers Squibb Company............... 8,000 217,200 Cubist Pharmaceuticals, Inc.*............... 4,000 42,640 Eli Lilly and Company....................... 4,000 275,880 GlaxoSmithKline PLC ADR(2).................. 22,673 919,163 ImmunoGen, Inc.*............................ 6,000 25,620 Johnson & Johnson(1)........................ 10,000 517,000 MedImmune, Inc.*............................ 27,500 1,000,175 MGI Pharma, Inc.*(2)........................ 10,000 256,300 Novartis AG ADR............................. 49,000 1,950,690 OSI Pharmaceuticals, Inc.*.................. 737 23,739 Pfizer, Inc. ............................... 28,554 975,119 Roche Holding AG ADR........................ 4,000 313,760 Schering AG ADR............................. 16,000 775,360 Serono SA ADR............................... 8,000 116,480 Wyeth....................................... 27,900 1,270,845 ----------- 10,824,291 ----------- TOTAL COMMON STOCKS (cost $22,023,045)........................ 20,115,378 -----------

RIGHTS -- 0.00%+ ---------------------------------------------------------------------- CONTINGENT VALUE RIGHTS -- 0.00%+ OSI Pharmaceuticals, Inc.#(2)............... 13,000 -- ----------- TOTAL RIGHTS (cost $0)...................... -- -----------

CORPORATE BONDS -- PRINCIPAL CONVERTIBLE -- 0.49%+ AMOUNT ---------------------------------------------------------------------- BIOMEDICAL -- 0.49%+ Human Genome Sciences, Inc., CLB, 5.000%, 2/1/2007..................... $ 150,000 130,500 ----------- TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $109,776)........................... 130,500 -----------

See Notes to the Financial Statements. 59 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PUT OPTIONS PURCHASED -- 0.94%+ CONTRACTS VALUE ---------------------------------------------------------------------- Genetech, Inc. Expiring September 2003 at $50.00......... 200 $ 13,000 IDEC Pharmaceuticals Corporation Expiring January 2003 at $40.00........... 230 184,000 Johnson & Johnson Expiring January 2004 at $55.00........... 100 55,500 ----------- TOTAL PUT OPTIONS PURCHASED (cost $356,163)........................... 252,500 -----------

PRINCIPAL SHORT-TERM INVESTMENTS -- 24.54%+ AMOUNT ---------------------------------------------------------------------- DISCOUNT NOTES -- 17.08%+ Federal Home Loan Bank Discount Note 0.4000%, 7/1/2003......................... $4,571,000 4,571,000 ----------- VARIABLE RATE DEMAND NOTES** -- 7.46%+ American Family, 0.8510%.................... 668,731 668,731 U.S. Bank, N.A., 0.7775%.................... 610,606 610,606 Wisconsin Corporate Central Credit Union, 0.06975%.................................. 715,557 715,557 ----------- 1,994,894 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $6,565,894)......................... 6,565,894 -----------

INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM AMOUNT SECURITIES LENDING -- 16.52%+ OR SHARES ---------------------------------------------------------------------- COMMERCIAL PAPER -- 0.79%+ UBS Finance Commercial Paper, 1.310%, 7/1/2003 (cost $210,231).................. $ 210,231 210,231 ----------- MONEY MARKET FUNDS -- 0.80%+ AIM Liquid Assets Portfolio -- Institutional Class..................................... 70,080 70,080 Merrill Lynch Premier Institutional Fund.... 145,053 145,053 ----------- TOTAL MONEY MARKET FUNDS (cost $215,133)........................... 215,133 -----------

See Notes to the Financial Statements. 60 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 14.93%+ CS First Boston Repurchase Agreement, 1.300%, 7/1/2003 (cost $1,191,353)(3)..... $1,191,353 $ 1,191,353 CS First Boston Repurchase Agreement, 1.435%, 7/1/2003 (cost $2,803,183)(3)..... 2,803,183 2,803,183 ----------- TOTAL REPURCHASE AGREEMENTS (cost $3,994,536)......................... 3,994,536 ----------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $4,419,900)............................... 4,419,900 ----------- TOTAL INVESTMENTS -- 117.68%+ (COST $33,474,778)........................ $31,484,172 ===========

------------------ * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of June 30, 2003. ADR -- American Depository Receipts. # -- Contingent value right (contingent upon profitability of company). + -- Calculated as a percentage of net assets. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at June 30, 2003. Total loaned securities had a market value of $4,081,044 at June 30, 2003. (3) -- Collateralized by U.S. Government or U.S. Government Agency securities, U.S. Government Agency mortgage-backed securities, certificates of deposit or banker's acceptances. See Notes to the Financial Statements. 61 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

COMMON STOCKS -- 78.98%+ SHARES VALUE --------------------------------------------------------------------- ACCESS/BROADBAND -- 0.16%+ UnitedGlobalCom, Inc. -- Class A*......... 10,000 $ 51,700 ----------- BANKS -- 0.01%+ Banque du Liban et d'Outre-Mer S.A.L. (BLOM) -- Class B GDR................... 100 2,250 ----------- BUSINESS SERVICES -- 7.73%+ Kroll, Inc.*.............................. 3,000 81,180 Quanta Services, Inc.*.................... 300,000 2,130,000 Ritchie Bros. Auctioneers Incorporated*... 7,200 277,272 ----------- 2,488,452 ----------- COMPUTER HARDWARE/SOFTWARE -- 3.08%+ Comdisco Holding Company, Inc. ........... 10,000 990,000 ----------- COMPUTER SERVICES -- 0.34%+ CACI International Inc. -- Class A*....... 2,000 68,600 Fidelity National Information Solutions, Inc.*................................... 1,600 41,728 ----------- 110,328 ----------- E-BUSINESS SERVICES -- 0.21%+ First Advantage Corporation -- Class A*... 4,000 66,600 ----------- ENERGY -- 2.95%+ Calpine Corporation*(2)................... 144,000 950,400 ----------- ENERGY-PIPELINE -- 4.87%+ El Paso Corporation....................... 96,000 775,680 The Williams Companies, Inc. ............. 100,000 790,000 ----------- 1,565,680 ----------- FINANCE -- 0.12%+ The FINOVA Group, Inc.*................... 200,000 39,000 ----------- HOLDING COMPANY -- 0.46%+ Leucadia National Corporation*............ 4,000 148,480 ----------- INFRASTRUCTURE -- 0.02%+ Lynch Interactive Corporation*............ 200 4,835 ----------- INTERNET TECHNOLOGY INFRASTRUCTURE -- 3.71%+ Level 3 Communications, Inc.*............. 180,000 1,195,200 ----------- INTERNET TECHNOLOGY/SOFTWARE -- 0.02%+ BARRA, Inc.*.............................. 200 7,140 -----------

See Notes to the Financial Statements. 62 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE --------------------------------------------------------------------- MANUFACTURING -- 0.28%+ Lynch Corporation*........................ 9,000 $ 88,200 Steinway Musical Instruments, Inc.*....... 200 3,080 ----------- 91,280 ----------- METAL FABRICATION -- 0.01%+ Commercial Metals Company................. 200 3,558 ----------- MINING -- 13.28%+ Aber Diamond Corporation*................. 2,600 53,901 Goldcorp, Inc.(1)......................... 101,000 1,212,000 Kinross Gold Corporation*................. 202,000 1,363,500 Stillwater Mining Company*................ 320,000 1,644,800 ----------- 4,274,201 ----------- PROPERTY/CASUALTY INSURANCE -- 5.36%+ Alleghany Corporation*.................... 102 19,482 Fairfax Financial Holdings Limited........ 8,000 1,231,200 White Mountains Insurance Group, Ltd...... 1,200 474,000 ----------- 1,724,682 ----------- PUBLISHING -- 4.95%+ Courier Corporation....................... 200 10,300 John Wiley & Sons, Inc. -- Class A........ 300 7,860 ProQuest Company*(2)...................... 4,000 103,200 R.H. Donnelley Corporation*............... 40,300 1,469,741 ----------- 1,591,101 ----------- REAL ESTATE DEVELOPMENT -- 1.35%+ Alexander's, Inc.*........................ 100 8,349 American Real Estate Partners, L.P.*...... 19,800 243,540 Forest City Enterprises, Inc. -- Class A....................................... 200 8,290 Texas Pacific Land Trust.................. 3,600 168,120 United Capital Corporation................ 200 6,960 ----------- 435,259 ----------- RE-INSURANCE -- 6.48%+ Montpelier Re Holdings, Ltd.*............. 66,000 2,085,600 ----------- TITLE INSURANCE -- 0.01%+ First American Corporation................ 100 2,635 ----------- TRANSPORT SERVICES -- 4.58%+ Laidlaw International, Inc.*.............. 200,000 1,471,995 -----------

See Notes to the Financial Statements. 63 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

SHARES VALUE --------------------------------------------------------------------- UTILITIES-DIVERSIFIED -- 3.65%+ CenterPoint Energy, Inc. ................. 144,000 $ 1,173,600 ----------- UTILITIES-ELECTRIC -- 15.35%+ Allegheny Energy, Inc.*................... 180,000 1,521,000 Aquilla, Inc.*(2)......................... 250,000 645,000 CMS Energy Corporation*(2)................ 100,000 810,000 Reliant Resources, Inc.*.................. 320,000 1,961,600 ----------- 4,937,600 ----------- TOTAL COMMON STOCKS (cost $22,648,788)...................... 25,411,576 -----------

PREFERRED STOCKS -- 1.89%+ --------------------------------------------------------------------- ENERGY -- 1.89%+ Calpine Capital Trust II, 5.500%, 2/01/2005............................... 10,000 421,250 Calpine Capital Trust III, 5.000%, 8/01/2005............................... 5,000 186,875 ----------- TOTAL PREFERRED STOCK (cost $501,525)......................... 608,125 -----------

PRINCIPAL CORPORATE BONDS -- 2.68%+ AMOUNT --------------------------------------------------------------------- FINANCE -- 1.08%+ The FINOVA Group, Inc., 7.500%, 11/15/2009.............................. $ 800,000 348,000 ----------- INFRASTRUCTURE -- 0.62%+ RCN Corporation, 11.125%, 10/15/2007(+)... 500,000 200,000 ----------- INTERNET TECHNOLOGY INFRASTRUCTURE -- 0.98%+ Level 3 Communications, Inc., CLB, 0.000%, 3/15/2010*(+)........................... 400,000 314,000 ----------- TOTAL CORPORATE BONDS (cost $759,764)......................... 862,000 -----------

CORPORATE BONDS -- CONVERTIBLE -- 3.68%+ --------------------------------------------------------------------- BIOMEDICAL -- 0.81%+ Human Genome Sciences, Inc., CLB, 5.000%, 2/1/2007................................ 300,000 261,000 -----------

See Notes to the Financial Statements. 64 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL AMOUNT VALUE --------------------------------------------------------------------- REAL ESTATE DEVELOPMENT -- 1.89%+ Trizec Hahn Corporation, CLB, 3.000%, 1/29/2021............................... $ 1,000,000 $ 607,500 ----------- VENTURE CAPITAL -- 0.98%+ Safeguard Scientifics, Inc., CLB, 5.000%, 6/15/2006............................... 400,000 314,000 ----------- TOTAL CORPORATE BONDS -- CONVERTIBLE (cost $1,128,466)....................... 1,182,500 -----------

RIGHTS -- 3.23%+ SHARES --------------------------------------------------------------------- CONTINGENT VALUE RIGHTS -- 3.23%+ Comdisco Holding Company, Inc.#........... 3,300,000 1,039,500 ----------- TOTAL RIGHTS (cost $963,968)......................... 1,039,500 -----------

PUT OPTIONS PURCHASED -- 0.07%+ CONTRACTS --------------------------------------------------------------------- The Kroger Co. Expiring January 2005 at $10.00......... 60 3,000 Expiring January 2005 at $15.00......... 40 7,200 Expiring January 2006 at $12.50......... 70 10,850 ----------- TOTAL PUT OPTIONS (cost $24,563).......................... 21,050 -----------

PRINCIPAL SHORT-TERM INVESTMENTS -- 36.85%+ AMOUNT --------------------------------------------------------------------- DISCOUNT NOTES -- 35.65%+ Federal Home Loan Bank Discount Note, 0.4000%, 7/1/2003....................... $11,472,000 11,472,000 -----------

See Notes to the Financial Statements. 65 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued)

PRINCIPAL AMOUNT VALUE --------------------------------------------------------------------- VARIABLE RATE DEMAND NOTES** -- 1.20%+ American Family, 0.8510%.................. $ 126,392 $ 126,392 U.S. Bank, N.A., .7775%................... 121,221 121,221 Wisconsin Corporate Central Credit Union, 0.6975%................................. 138,484 138,484 ----------- 386,097 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $11,858,097)...................... 11,858,097 -----------

INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM AMOUNT SECURITIES LENDING -- 7.82%+ OR SHARES --------------------------------------------------------------------- COMMERCIAL PAPER -- 0.37%+ UBS Finance Commercial Paper, 1.3100%, 07/01/2003 (cost $119,754).............. $ 119,754 119,754 ----------- MONEY MARKET FUNDS -- 0.38%+ AIM Liquid Assets Portfolio -- Institutional Class........ 39,919 39,919 Merrill Lynch Premier Institutional Fund.................................... 82,628 82,628 ----------- TOTAL MONEY MARKET FUNDS (cost $122,547)......................... 122,547 -----------

See Notes to the Financial Statements. 66 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited) -- (Continued) INVESTMENTS PURCHASED WITH PRINCIPAL CASH PROCEEDS FROM AMOUNT SECURITIES LENDING -- 7.82%+ OR SHARES VALUE ------------------------------------------------------------------------------------- REPURCHASE AGREEMENTS -- 7.07%+ CS First Boston Repurchase Agreement, 1.3000%, 7/1/2003 (Cost $678,627)(3)............... $ 678,627 $ 678,627 CS First Boston Repurchase Agreement, 1.4350%, 7/1/2003 (Cost $1,596,772)(3)............. 1,596,772 1,596,772 -------------- TOTAL REPURCHASE AGREEMENTS (cost $2,275,399).................................. 2,275,399 -------------- TOTAL INVESTMENTS PURCHASED WITH CASH PROCEEDS FROM SECURITIES LENDING (cost $2,517,700).................................. 2,517,700 -------------- TOTAL INVESTMENTS -- 135.20%+ (COST $40,402,871)................................. $ 43,500,548 ============== ------------------ * -- Non-income producing security. ** -- Variable rate demand notes are considered short-term obligations and are payable on demand. Interest rates change periodically on specified dates. The rates listed are as of June 30, 2003. # -- Contingent value right (contingent upon profitability of company). + -- Calculated as a percentage of net assets. (+) -- Security has a stepped rate. The rate listed is as of June 30, 2003. GDR -- Global Depository Receipts. (1) -- All or a portion of the shares have been committed as collateral for written option contracts. (2) -- This security or a portion of this security was out on loan at June 30, 2003. Total loaned securities had a market value of $2,281,542 at June 30, 2003. (3) -- Collateralized by U.S. Government or U.S. Government Agency securities, U.S. Government Agency mortgage-backed securities, certificates of deposit or banker's acceptances. See Notes to the Financial Statements. 67 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO Portfolio of Investments -- June 30, 2003 (Unaudited)

PRINCIPAL SHORT-TERM INVESTMENTS -- 104.90%+ AMOUNT VALUE -------------------------------------------------------------------- DISCOUNT NOTES -- 104.90%+ Federal Home Loan Bank Discount Note, 0.4000%, 07/01/2003..................... $68,516,000 $68,516,000 ----------- TOTAL INVESTMENTS -- 104.90%+ (COST $68,516,000)...................... $68,516,000 ===========

------------------ + -- Calculated as a percentage of net assets. See Notes to the Financial Statements. 68 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE INTERNET PORTFOLIO Portfolio of Options Written -- June 30, 2003 (Unaudited)

CALL OPTIONS WRITTEN CONTRACTS VALUE -------------------------------------------------------------------------- Getty Images, Inc. Expiring July 2003 at $30.00................... 180 $203,400 WebMD Corporation Expiring January 2005 at $10.00................ 1,090 327,000 -------- 530,400 --------

PUT OPTIONS WRITTEN -------------------------------------------------------------------------- eBay, Inc. Expiring January 2005 at $80.00................ 25 20,250 Fidelity National Information Solutions, Inc. Expiring July 2003 at $15.00................... 1,250 15,625 Expiring July 2003 at $17.50................... 180 1,800 -------- 37,675 -------- TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $601,674)................... $568,075 ========

See Notes to the Financial Statements. 69 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE PARADIGM PORTFOLIO Portfolio of Options Written -- June 30, 2003 (Unaudited)

PUT OPTIONS WRITTEN CONTRACTS VALUE -------------------------------------------------------------------------- Alleghany Corporation Expiring January 2004 at $50.00................. 30 $11,400 Bristol-Myers Squibb Company Expiring January 2005 at $20.00................. 10 1,375 General Dynamics Corporation Expiring January 2004 at $60.00................. 40 7,700 Expiring January 2004 at $70.00................. 20 10,200 ------- TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $52,468)..................... $30,675 =======

See Notes to the Financial Statements. 70 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE MEDICAL PORTFOLIO Portfolio of Options Written -- June 30, 2003 (Unaudited)

CALL OPTIONS WRITTEN CONTRACTS VALUE -------------------------------------------------------------------------- Genetech, Inc. Expiring September 2003 at $55.00.............. 150 $273,750 Johnson & Johnson Expiring January 2004 at $55.00................ 100 23,000 -------- 296,750 --------

PUT OPTIONS WRITTEN -------------------------------------------------------------------------- Aventis S.A. ADR Expiring July 2003 at $40.00................... 20 150 -------- TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $160,424)................... $296,900 ========

See Notes to the Financial Statements. 71 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS THE SMALL CAP OPPORTUNITIES PORTFOLIO Portfolio of Options Written -- June 30, 2003 (Unaudited)

PUT OPTIONS WRITTEN CONTRACTS VALUE -------------------------------------------------------------------------- Goldcorp, Inc. Expiring July 2003 at $12.50..................... 80 $5,800 ------ TOTAL OPTIONS WRITTEN (PREMIUMS RECEIVED $20,519)...................... $5,800 ======

See Notes to the Financial Statements. 72 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE INTERNET THE INTERNET EMERGING GROWTH PORTFOLIO PORTFOLIO ----------------------------------------------------------------------------------------- ASSETS: Investments, at value(1) (3)........................... $309,186,378 $4,805,239 Receivable for contributed capital..................... 6,589,304 107,100 Cash................................................... 397,411 1,370 Dividends and interest receivable...................... 299,121 6,737 Other assets........................................... 12,025 144 ------------ ---------- Total assets....................................... 316,484,239 4,920,590 ------------ ---------- LIABILITIES: Written options, at value(2)........................... 568,075 -- Payable to Adviser..................................... 280,147 4,274 Payable to Trustees.................................... 15,441 197 Payables for collateral received for securities loaned............................................... 54,268,828 470,900 Payable for withdrawn capital.......................... 209,689 991 Payable for investments purchased...................... -- 18,640 Accrued expenses and other liabilities................. 173,760 5,638 ------------ ---------- Total liabilities.................................. 55,515,940 500,640 ------------ ---------- Net assets........................................... $260,968,299 $4,419,950 ============ ========== (1) Cost of investments.................................. $280,743,817 $5,613,016 ============ ========== (2) Premiums received.................................... $ 601,674 $ -- ============ ========== (3) Includes loaned securities with a market value of.... $ 53,376,859 $ 459,744 ============ ==========

See Notes to the Financial Statements. 73 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE PARADIGM THE MEDICAL PORTFOLIO PORTFOLIO --------------------------------------------------------------------------------------- ASSETS: Investments, at value(1)(3)............................... $31,622,826 $31,484,172 Receivable for contributed capital........................ 337,246 77,841 Cash...................................................... 93,227 1,528 Dividends and interest receivable......................... 55,180 11,076 Other assets.............................................. 231 1,495 ----------- ----------- Total assets.......................................... 32,108,710 31,576,112 ----------- ----------- LIABILITIES: Written options, at value(2).............................. 30,675 296,900 Payable to Adviser........................................ 28,163 30,215 Payable to Trustees....................................... 1,010 1,522 Payables for collateral received for securities loaned.... 1,392,400 4,419,900 Payable for investments purchased......................... -- 41,300 Payable for withdrawn capital............................. 83,209 13,029 Accrued expenses and other liabilities.................... 13,152 18,190 ----------- ----------- Total liabilities..................................... 1,548,609 4,821,056 ----------- ----------- Net assets.............................................. $30,560,101 $26,755,056 =========== =========== (1) Cost of investments..................................... $27,858,885 $33,474,778 =========== =========== (2) Premiums received....................................... $ 52,468 $ 160,424 =========== =========== (3) Includes loaned securities with a market value of....... $ 1,329,856 $ 4,081,044 =========== ===========

See Notes to the Financial Statements. 74 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF ASSETS & LIABILITIES June 30, 2003 (Unaudited)

THE KINETICS GOVERNMENT THE SMALL CAP MONEY OPPORTUNITIES MARKET PORTFOLIO PORTFOLIO ----------------------------------------------------------------------------------------- ASSETS: Investments, at value(1) (3)............................. $43,500,548 $68,516,000 Receivable for contributed capital....................... 73,782 3,139,363 Cash..................................................... -- -- Dividends and interest receivable........................ 43,701 -- Other assets............................................. 307 3,673 ----------- ----------- Total assets......................................... 43,618,338 71,659,036 ----------- ----------- LIABILITIES: Written options, at value(2)............................. 5,800 -- Payable to Adviser....................................... 43,599 18,275 Payable to Trustees...................................... 1,254 3,334 Payable to Custodian..................................... 1,742,267 3,675 Payables for collateral received for securities loaned... 2,517,700 -- Payable for withdrawn capital............................ 7,122,275 6,278,622 Accrued expenses and other liabilities................... 11,415 36,627 ----------- ----------- Total liabilities.................................... 11,444,310 6,340,533 ----------- ----------- Net assets............................................. $32,174,028 $65,318,503 =========== =========== (1) Cost of investments.................................... $40,402,871 $68,516,000 =========== =========== (2) Premiums received...................................... $ 20,519 =========== (3) Includes loaned securities with a market value of...... $ 2,281,542 ===========

See Notes to the Financial Statements. 75 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE INTERNET THE INTERNET EMERGING PORTFOLIO GROWTH PORTFOLIO ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+............................................ $ 725,692 $ 11,251 Interest.............................................. 2,214,370 22,199 Income from securities lending........................ 12,531 128 ----------- -------- Total investment income......................... 2,952,593 33,578 ----------- -------- EXPENSES: Investment advisory fees.............................. 1,545,710 21,053 Administration fees................................... 124,023 1,717 Professional fees..................................... 64,332 848 Custodian fees and expenses........................... 42,200 5,302 Trustees' fees and expenses........................... 26,834 344 Fund accounting fees.................................. 30,816 1,279 Other expenses........................................ 9,590 136 ----------- -------- Net expenses.................................... 1,843,505 30,679 ----------- -------- Net investment income................................... 1,109,088 2,899 ----------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments and foreign currency.................... (8,592,150) (22,486) Written option contracts expired or closed.......... (1,940,244) 9,230 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency.................... 72,152,069 519,261 Written option contracts............................ (81,104) -- ----------- -------- Net gain on investments................................. 61,538,571 506,005 ----------- -------- Net increase in net assets resulting from operations.... $62,647,659 $508,904 =========== ======== + Net of Foreign Taxes Withheld of:..................... $ 54,167 $ 293 =========== ========

See Notes to the Financial Statements. 76 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE PARADIGM THE MEDICAL PORTFOLIO PORTFOLIO -------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+........................................... $ 112,135 $ 113,349 Interest............................................. 131,286 38,304 Income from securities lending....................... 597 2,009 ---------- ---------- Total investment income........................ 244,018 153,662 ---------- ---------- EXPENSES: Investment advisory fees............................. 99,335 155,711 Administration fees.................................. 7,510 12,371 Professional fees.................................... 4,275 6,368 Custodian fees and expenses.......................... 5,081 4,026 Trustees' fees and expenses.......................... 1,700 2,621 Fund accounting fees................................. 3,575 4,755 Other expenses....................................... 293 1,075 ---------- ---------- Net expenses................................... 121,769 186,927 ---------- ---------- Net investment income (loss)........................... 122,249 (33,265) ---------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments and foreign currency................... (201,961) (210,475) Written option contracts expired or closed......... 28,881 116,703 Net change in unrealized appreciation (depreciation) of: Investments and foreign currency................... 3,411,523 4,578,205 Written option contracts........................... 26,186 (292,251) ---------- ---------- Net gain on investments................................ 3,264,629 4,192,182 ---------- ---------- Net increase in net assets resulting from operations... $3,386,878 $4,158,917 ========== ========== + Net of Foreign Taxes Withheld of:.................... $ 5,237 $ 11,293 ========== ==========

See Notes to the Financial Statements. 77 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF OPERATIONS Six Months Ended June 30, 2003 (Unaudited)

THE SMALL CAP THE KINETICS OPPORTUNITIES GOVERNMENT MONEY PORTFOLIO MARKET PORTFOLIO ----------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividends+........................................... $ 123,921 $ -- Interest............................................. 206,560 339,648 Income from securities lending....................... 96 -- ---------- -------- Total investment income........................ 330,577 339,648 ---------- -------- EXPENSES: Investment advisory fees............................. 105,522 166,209 Administration fees.................................. 6,785 34,021 Professional fees.................................... 4,327 17,725 Custodian fees and expenses.......................... 7,704 7,972 Trustees' fees and expenses.......................... 1,465 7,553 Fund accounting fees................................. 3,213 12,009 Other expenses....................................... 225 2,511 ---------- -------- Net expenses................................... 129,241 248,000 ---------- -------- Net investment income.................................. 201,336 91,648 ---------- -------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments and foreign currency................... (78,706) -- Written option contracts expired or closed......... 1,175 -- Net change in unrealized appreciation of: Investments and foreign currency................... 3,175,830 -- Written option contracts........................... 10,508 -- ---------- -------- Net gain on investments................................ 3,108,807 -- ---------- -------- Net increase in net assets resulting from operations... $3,310,143 $ 91,648 ========== ======== + Net of Foreign Taxes Withheld of:.................... $ 332 $ -- ========== ========

See Notes to the Financial Statements. 78 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF CHANGES IN NET ASSETS

THE INTERNET THE INTERNET PORTFOLIO EMERGING GROWTH PORTFOLIO --------------------------------- ---------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ----------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)................... $ 1,109,088 $ 1,430,291 $ 2,899 $ (43,192) Net realized loss on sale of investments, foreign currency and written options.................. (10,532,394) (119,821,765) (13,256) (2,199,366) Net change in unrealized appreciation of investments, foreign currency and written options.................. 72,070,965 59,167,794 519,261 1,047,336 --------------- --------------- ---------- ----------- Net increase (decrease) in net assets resulting from operations........... 62,647,659 (59,223,680) 508,904 (1,195,222) --------------- --------------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions.............. 1,872,252,096 6,246,337,962 820,043 479,676 Withdrawals................ (1,864,390,411) (6,295,968,211) (254,420) (1,130,358) --------------- --------------- ---------- ----------- Net increase (decrease) in net assets resulting from beneficial interest transactions......... 7,861,685 (49,630,249) 565,623 (650,682) --------------- --------------- ---------- ----------- Total increase (decrease) in net assets............ 70,509,344 (108,853,929) 1,074,527 (1,845,904) NET ASSETS: Beginning of period........ 190,458,955 299,312,884 3,345,423 5,191,327 --------------- --------------- ---------- ----------- End of period.............. $ 260,968,299 $ 190,458,955 $4,419,950 $ 3,345,423 =============== =============== ========== ===========

See Notes to the Financial Statements. 79 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF CHANGES IN NET ASSETS

THE PARADIGM PORTFOLIO THE MEDICAL PORTFOLIO ---------------------------- ----------------------------- SIX MONTHS FOR THE SIX MONTHS FOR THE ENDED YEAR ENDED ENDED YEAR ENDED JUNE 30, 2003 DECEMBER 31, JUNE 30, 2003 DECEMBER 31, (UNAUDITED) 2002 (UNAUDITED) 2002 ------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss).................. $ 122,249 $ (28,085) $ (33,265) $ (140,748) Net realized loss on sale of investments, foreign currency and written options................. (173,080) (453,569) (93,772) (2,214,611) Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options................. 3,437,709 111,811 4,285,954 (8,862,627) ------------ ------------ ------------ ------------- Net increase (decrease) in net assets resulting from operations..... 3,386,878 (369,843) 4,158,917 (11,217,986) ------------ ------------ ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions............. 38,543,226 23,900,519 82,130,448 140,914,902 Withdrawals............... (21,889,279) (21,837,146) (82,975,166) (148,002,868) ------------ ------------ ------------ ------------- Net increase (decrease) in net assets resulting from beneficial interest transactions........ 16,653,947 2,063,373 (844,718) (7,087,966) ------------ ------------ ------------ ------------- Total increase (decrease) in net assets........... 20,040,825 1,693,530 3,314,199 (18,305,952) NET ASSETS: Beginning of period....... 10,519,276 8,825,746 23,440,857 41,746,809 ------------ ------------ ------------ ------------- End of period............. $ 30,560,101 $ 10,519,276 $ 26,755,056 $ 23,440,857 ============ ============ ============ =============

See Notes to the Financial Statements. 80 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF CHANGES IN NET ASSETS

THE SMALL CAP OPPORTUNITIES PORTFOLIO ---------------------------- SIX MONTHS ENDED FOR THE JUNE 30, YEAR ENDED 2003 DECEMBER 31, (UNAUDITED) 2002 ------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss)......................... $ 201,336 $ (21,502) Net realized loss on sale of investments, foreign currency and written options....................... (77,531) (1,537,614) Net change in unrealized appreciation (depreciation) of investments, foreign currency and written options............................................ 3,186,338 (651,273) ------------- ------------ Net increase (decrease) in net assets resulting from operations................................ 3,310,143 (2,210,389) ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions........................................ 166,343,371 68,372,440 Withdrawals.......................................... (140,975,456) (71,826,291) ------------- ------------ Net increase (decrease) in net assets resulting from beneficial interest transactions.......... 25,367,915 (3,453,851) ------------- ------------ Total increase (decrease) in net assets.............. 28,678,058 (5,664,240) NET ASSETS: Beginning of period.................................. 3,495,970 9,160,210 ------------- ------------ End of period........................................ $ 32,174,028 $ 3,495,970 ============= ============

See Notes to the Financial Statements. 81 KINETICS MUTUAL FUNDS, INC. -- MASTER INVESTMENT PORTFOLIOS STATEMENT OF CHANGES IN NET ASSETS

THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO --------------------------------- SIX MONTHS ENDED FOR THE JUNE 30, YEAR ENDED 2003 DECEMBER 31, (UNAUDITED) 2002 -------------------------------------------------------------------------------------- OPERATIONS: Net investment income............................ $ 91,648 $ 628,146 Net realized gain on sale of investments......... -- -- Net change in unrealized appreciation of investments.................................... -- -- --------------- --------------- Net increase in net assets resulting from operations................................. 91,648 628,146 --------------- --------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM BENEFICIAL INTEREST TRANSACTIONS: Contributions.................................... 2,042,288,314 6,517,468,035 Withdrawals...................................... (2,105,822,237) (6,484,223,874) --------------- --------------- Net increase (decrease) in net assets resulting from beneficial interest transactions............................... (63,533,923) 33,244,161 --------------- --------------- Total increase (decrease) in net assets.......... (63,442,275) 33,872,307 NET ASSETS: Beginning of period.............................. 128,760,778 94,888,471 --------------- --------------- End of period.................................... $ 65,318,503 $ 128,760,778 =============== ===============

See Notes to the Financial Statements. 82 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS June 30, 2003 (Unaudited) 1. ORGANIZATION The Kinetics Portfolios Trust (the "Trust") was organized as a Delaware Statutory Trust on March 14, 2000 and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company issuing its beneficial interests in series, each series representing a distinct portfolio with its own investment objectives and policies. The series currently authorized are The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, and The Kinetics Government Money Market Portfolio (the "Master Portfolios"). Pursuant to the 1940 Act, the Master Portfolios, with the exception of The Kinetics Government Money Market Portfolio, are "non-diversified" series of the Trust. Each of the Master Portfolios commenced operations on April 28, 2000. Each Master Portfolio is a Master Investment Portfolio in a master-feeder fund structure. Each Master Portfolio has multiple feeder funds invested in the Master Portfolio. By contributing assets to the Master Portfolio, the feeder funds receive a beneficial interest in the Master Portfolio. The Master Portfolio then invests the contributed assets in portfolio securities and allocates income, gains (losses) and expenses to the feeder funds based on the funds' proportionate interest in the Master Portfolio. Each of the Master Portfolios, with the exception of The Kinetics Government Money Market Portfolio, seeks to provide investors with long-term capital growth. The Internet Portfolio invests primarily in the equity securities of U.S. and foreign companies engaged in the Internet and Internet-related activities. The Internet Emerging Growth Portfolio invests primarily in the equity securities of small and medium capitalization U.S. and foreign growth emerging companies engaged in the Internet and Internet-related activities. The Paradigm Portfolio invests primarily in the equity securities of U.S. and foreign companies that the investment adviser believes are undervalued with high returns on equity, as well as, well positioned to reduce their costs, extend the reach of their distribution channels and experience significant growth in revenues. The Medical Portfolio invests primarily in the equity securities of U.S. and foreign companies engaged in medical research, pharmaceutical treatments and related medical technology with a focus on companies engaged in cancer research and drug development. The Small Cap Opportunities Portfolio invests primarily in the equity securities of U.S. and foreign small capitalization companies that provide attractive valuation 83 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) opportunities due to special situations such as lack of institutional ownership, lack of significant analyst coverage or companies with sound fundamentals that have experienced a short-term earnings shortfall. The Kinetics Government Money Market Portfolio seeks to provide investors with current income consistent with the preservation of capital and maintenance of liquidity by investing in money market instruments issued by the U.S. Government, its agencies or instrumentalities. 2. SIGNIFICANT ACCOUNTING POLICIES SECURITY VALUATION Master Portfolio securities (other than Government) that are listed on a U.S. securities exchange (whether domestic or foreign) for which market quotations are readily available are valued at the last quoted sale price as of 4:00 p.m. Eastern time on the day the valuation is made. All equity securities that are traded using the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") are valued using the NASDAQ Official Closing Price ("NOCP"). Purchased options, futures, unlisted U.S. securities and listed U.S. securities not traded on the valuation date for which market quotations are readily available are valued at the most recent bid price. Fixed-income securities (other than obligations having a maturity of 60 days or less) are normally valued on the basis of quotes obtained from pricing services, which take into account appropriate factors such as institutional sized trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. Investments in The Kinetics Government Money Market Portfolio and instruments purchased with remaining maturities of 60 days or less are valued at amortized cost, which approximates fair value. Other assets and securities for which no quotations are readily available (including restricted securities) will be valued in good faith at fair value using methods determined by the Board of Trustees of the Master Portfolios. At June 30, 2003, the Master Portfolios did not hold any investment securities which were determined to be fair valued pursuant to the guidelines adopted by the Board of Trustees. REPURCHASE AGREEMENTS Each Master Portfolio may enter into repurchase agreements with banks that are members of the Federal Reserve System or securities dealers who are members of a national securities exchange or are primary dealers in U.S. Government Securities. In connection with transactions in repurchase 84 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) agreements, it is the Trust's policy that the Master Portfolio receive, as collateral, securities whose market value, including accrued interest, at all times will be at least equal to 100% of the amount invested by the Master Portfolio in each repurchase agreement. If the seller defaults, and the value of the collateral declines, realization of the collateral by the Master Portfolio may be delayed or limited. WRITTEN OPTION ACCOUNTING The Master Portfolios may write (sell) call or put options for trading or hedging purposes. When a Master Portfolio writes an option, an amount equal to the premium received by the Master Portfolio is included in the Statement of Assets and Liabilities as an asset and an equivalent liability. The amount of the liability is subsequently marked-to-market to reflect the current value of the option written. By writing the option, the Master Portfolio may become obligated during the term of the option to deliver or purchase the securities underlying the option at the exercise price if the option is exercised. Option contracts are valued at the average of the current bid and asked price reported on the day of the valuation. When an option expires on its stipulated expiration date or the Master Portfolio enters into a closing purchase transaction, the Master Portfolio realizes a gain or loss if the cost of the closing transaction differs from the premium received when the option was sold, without regard to any unrealized gain or loss on the underlying security, and the liability related to such option is eliminated. When an option is exercised, the premium originally received decreases the cost basis of the underlying security (or increases the proceeds on the security sold short) and the Master Portfolio realizes a gain or loss from the sale of the security (or closing of the short sale). As collateral for uncovered written options, the Master Portfolio is required under the 1940 Act to maintain assets consisting of cash, cash equivalents or liquid securities. This collateral is required to be adjusted daily to reflect the market value of the purchase obligation for put options or the market value of the instrument underlying the contract for call options. FOREIGN CURRENCY TRANSLATIONS The books and records of the Master Portfolios are maintained in U.S. dollars. For the Master Portfolios, foreign currency transactions are translated into U.S. dollars on the following basis: (i) market value of investment securities and other assets and liabilities are translated at the daily rates of exchange, and (ii) purchases and sales of investment securities, dividend and interest income and certain expenses at the rates of exchange prevailing on 85 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) the respective dates of such transactions. The Master Portfolios do not isolate and treat as ordinary income that portion of the results of operations arising as a result of changes in the exchange rate from the fluctuations arising from changes in the market prices of securities held during the period. However, the Master Portfolios do isolate and treat as ordinary income the effect of changes in foreign exchange rates arising from actual foreign currency transactions and the effect of changes in foreign exchange rates arising between trade date and settlement date. RESTRICTED SECURITIES The Master Portfolios may invest in restricted securities. These securities are valued by the Master Portfolios after giving due consideration to pertinent factors including recent private sales, market conditions and the issuer's financial performance. The Master Portfolios have no right to require registration of unregistered securities. At June 30, 2003, the Master Portfolios did not hold any investment securities which were determined to be restricted pursuant to the guidelines adopted by the Board of Trustees. WHEN-ISSUED SECURITIES The Master Portfolios may purchase securities on a when-issued or delayed delivery basis. Although the purchase amounts of these securities are established at the time the purchaser enters into the agreement, these securities may be delivered and paid for at a future date. The Master Portfolios record purchases of when-issued securities and reflect the values of such securities in determining net asset value in the same manner as other portfolio securities. The Master Portfolios maintain at all times cash or other liquid assets in an amount at least equal to the amount of outstanding commitments for when-issued securities. SECURITIES LENDING Each Master Portfolio may lend its portfolio securities to broker-dealers by entering directly into lending arrangements with such broker-dealers or indirectly through repurchase agreements to no more than 33 1/3% of its assets. Securities lending and repurchase transactions will be fully collateralized at all times with cash and/or short-term debt obligations. The Master Portfolios receive interest on the collateral received as well as a fee for the securities loaned. EXPENSE ALLOCATION Common expenses incurred by the Master Portfolios are allocated among the Master Portfolios (i) based upon relative average net assets, (ii) as incurred on 86 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) a specific identification basis, or (iii) equally among the Master Portfolios, depending on the nature of the expenditure. All expenses incurred by the Master Portfolios are allocated to the Feeder Funds daily based on their proportionate interest in the Master Portfolio. FEDERAL INCOME TAXES Each Master Portfolio intends to qualify as a partnership for federal income tax purposes. Therefore, the Master Portfolios believe they will not be subject to any federal income tax on their income and net realized capital gains (if any). However, each investor in the Master Portfolios will report its allocable share of the Master Portfolio's income and capital gains for purposes of determining its federal income tax liability. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts in the financial statements. Actual results could differ from those estimates. OTHER Realized gains and losses on the sale of investments are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date and interest income is recognized on the accrual basis. 3. INVESTMENT ADVISER The Trust has an Investment Advisory Agreement (the "Agreement") with Kinetics Asset Management, Inc. (the "Adviser"), with whom certain officers and trustees of the Trust are affiliated, to furnish investment advisory services to the Master Portfolios. Under the terms of the Agreement, the Master Portfolios compensate the Adviser for its management services at the annual rate of 1.25% of each Master Portfolio's average daily net assets, except for The Kinetics Government Money Market Portfolio, which compensates the Adviser at a rate of 0.50% of the Master Portfolio's average daily net assets. For the six months ended June 30, 2003, The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, The Small Cap Opportunities Portfolio, and The Kinetics Government Money Market Portfolio incurred expenses of $1,545,710, $21,053, $99,335, $155,711, $105,522 and $166,209, respectively, pursuant to the Investment Advisory Agreement. 87 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) 4. SECURITIES TRANSACTIONS Purchases and sales of investment securities, other than short-term investments, for the six months ended June 30, 2003 were as follows:

PURCHASES SALES ------------------------ ------------------------ U.S. U.S. GOVERNMENT OTHER GOVERNMENT OTHER ---------- ----------- ---------- ----------- The Internet Portfolio....... $-- $83,341,244 $-- $64,444,877 The Internet Emerging Growth Portfolio.................. -- 2,032,675 -- 85,503 The Paradigm Portfolio....... -- 14,684,524 -- 1,710,722 The Medical Portfolio........ -- 2,214,253 -- 5,255,763 The Small Cap Opportunities Portfolio.................. -- 26,045,115 -- 1,663,445

As of June 30, 2003, unrealized appreciation (depreciation) on investment securities for federal income tax purposes was as follows:

NET APPRECIATION APPRECIATED DEPRECIATED (DEPRECIATION) SECURITIES SECURITIES -------------- ----------- ------------ The Internet Portfolio................. $26,727,209 $79,584,678 $(52,857,469) The Internet Emerging Growth Portfolio............................ (809,337) 811,676 (1,621,013) The Paradigm Portfolio................. 3,758,285 4,252,343 (494,058) The Medical Portfolio.................. (2,008,646) 3,263,810 (5,272,456) The Small Cap Opportunities Portfolio............................ 3,097,677 3,961,823 (864,146)

At June 30, 2003, the cost of investments for federal income tax purposes was $282,459,169, $5,614,576, $27,864,541, $33,492,818 and $40,402,871 for The Internet Portfolio, The Internet Emerging Growth Portfolio, The Paradigm Portfolio, The Medical Portfolio, and The Small Cap Opportunities Portfolio, respectively. For the six months ended June 30, 2003 the Master Portfolios wrote the following options:

NUMBER PREMIUM OF CONTRACTS AMOUNT ------------ ----------- THE INTERNET PORTFOLIO ------------------------------------------ Outstanding at the Beginning of Period.... 1,612 $ 1,077,028 Options Written........................... 10,310 2,970,072 Options Exercised......................... (86) (49,860) Options Expired........................... (520) (271,371) Options Closed............................ (8,591) (3,124,195) ------ ----------- Outstanding at the End of Period.......... 2,725 $ 601,674 ====== ===========

88 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited)

NUMBER PREMIUM OF CONTRACTS AMOUNT ------------ ----------- THE INTERNET EMERGING GROWTH PORTFOLIO ------------------------------------------ Outstanding at the Beginning of Period.... 20 $ 9,230 Options Expired........................... (20) (9,230) ------ ----------- Outstanding at the End of Period.......... -- $ -- ====== =========== THE PARADIGM PORTFOLIO ------------------------------------------ Outstanding at the Beginning of Period.... 380 $ 45,257 Options Written........................... 502 216,877 Options Expired........................... (20) (7,232) Options Closed............................ (762) (202,434) ------ ----------- Outstanding at the End of Period.......... 100 $ 52,468 ====== =========== THE MEDICAL PORTFOLIO ------------------------------------------ Outstanding at the Beginning of Period.... 580 $ 448,325 Options Written........................... 170 61,777 Options Exercised......................... (310) (202,509) Options Expired........................... (80) (45,319) Options Closed............................ (90) (101,850) ------ ----------- Outstanding at the End of Period.......... 270 $ 160,424 ====== =========== THE SMALL CAP OPPORTUNITIES PORTFOLIO ------------------------------------------ Outstanding at the Beginning of Period.... 180 $ 28,812 Options Written........................... 300 57,998 Options Closed............................ (400) (66,291) ------ ----------- Outstanding at the End of Period.......... 80 $ 20,519 ====== ===========

5. PORTFOLIO SECURITIES LOANED As of June 30, 2003, the Master Portfolios had loaned securities that were collateralized by cash. The cash collateral is invested by the custodian in a money market pooled account approved by the Adviser. Although risk is mitigated by the collateral, the Master Portfolio could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. The Master Portfolio receives interest on the collateral received as well as a fee for the securities loaned. The value of the securities on loan and the value of the related collateral at June 30, 2003, were as follows:

SECURITIES COLLATERAL ----------- ----------- The Internet Portfolio.................... $53,376,859 $54,268,828 The Internet Emerging Growth Portfolio.... 459,744 470,900 The Paradigm Portfolio.................... 1,329,856 1,392,400 The Medical Portfolio..................... 4,081,044 4,419,900 The Small Cap Opportunities Portfolio..... 2,281,542 2,517,700

89 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited) 6. SELECTED FINANCIAL HIGHLIGHTS Financial highlights for the Master Portfolios were as follows:

THE INTERNET PORTFOLIO ------------------------------------------------------------ SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+) ENDED YEAR ENDED YEAR ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 2000 ---------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement....... 1.49%* 1.51% 1.44% 1.43%* After expense reimbursement........ 1.49%* 1.51% 1.44% 1.43%* Ratio of net investment income (loss) to average net assets: Before expense reimbursement....... 0.90%* 0.50% 0.32% (0.69%)* After expense reimbursement........ 0.90%* 0.50% 0.32% (0.69%)* Portfolio turnover rate............. 34% 41% 44% 16%

------------------ * Annualized. (+) Commencement of operations.

THE INTERNET EMERGING GROWTH PORTFOLIO ------------------------------------------------------------ SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+) ENDED YEAR ENDED YEAR ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 2000 ---------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement....... 1.82%* 1.83% 2.30% 1.93%* After expense reimbursement........ 1.82%* 1.83% 2.30% 1.84%* Ratio of net investment income (loss) to average net assets: Before expense reimbursement....... 0.17%* (1.07%) (0.22%) (0.35%)* After expense reimbursement........ 0.17%* (1.07%) (0.22%) (0.26%)* Portfolio turnover rate............. 4% 27% 24% 30%

------------------ * Annualized. (+) Commencement of operations.

THE PARADIGM PORTFOLIO ------------------------------------------------------------ SIX MONTHS FOR THE FOR THE APRIL 28, 2000(+) ENDED YEAR ENDED YEAR ENDED THROUGH JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 2003 2002 2001 2000 ---------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement....... 1.53%* 1.64% 2.27% 2.85%* After expense reimbursement........ 1.53%* 1.64% 2.27% 2.60%* Ratio of net investment income (loss) to average net assets: Before expense reimbursement....... 1.54%* (0.27%) (0.69%) (0.66%)* After expense reimbursement........ 1.54%* (0.27%) (0.69%) (0.41%)* Portfolio turnover rate............. 12% 40% 41% 89%

------------------ * Annualized. (+) Commencement of operations. 90 KINETICS PORTFOLIOS TRUST -- MASTER INVESTMENT PORTFOLIOS NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) June 30, 2003 (Unaudited)

THE MEDICAL PORTFOLIO ------------------------------------------------------------- SIX MONTHS ENDED FOR THE FOR THE APRIL 28, 2000(+) JUNE 30, YEAR ENDED YEAR ENDED THROUGH 2003 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 2002 2001 2000 ----------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement...... 1.50%* 1.53% 1.51% 1.47%* After expense reimbursement....... 1.50%* 1.53% 1.51% 1.46%* Ratio of net investment loss to average net assets: Before expense reimbursement...... (0.27%)* (0.47%) (0.39%) (0.55%)* After expense reimbursement....... (0.27%)* (0.47%) (0.39%) (0.54%)* Portfolio turnover rate............ 12% 9% 6% 1%

------------------ * Annualized. (+) Commencement of operations.

THE SMALL CAP OPPORTUNITIES PORTFOLIO ------------------------------------------------------------- SIX MONTHS ENDED FOR THE FOR THE APRIL 28, 2000(+) JUNE 30, YEAR ENDED YEAR ENDED THROUGH 2003 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 2002 2001 2000 ----------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement...... 1.53%* 1.66% 2.35% 13.27%* After expense reimbursement....... 1.53%* 1.66% 2.35% 10.93%* Ratio of net investment income (loss) to average net assets: Before expense reimbursement...... 2.38%* (0.29%) (0.99%) (11.12%)* After expense reimbursement....... 2.38%* (0.29%) (0.99%) (8.78%)* Portfolio turnover rate............ 16% 200% 181% 198%

------------------ * Annualized. (+) Commencement of operations.

THE KINETICS GOVERNMENT MONEY MARKET PORTFOLIO ------------------------------------------------------------- SIX MONTHS ENDED FOR THE FOR THE APRIL 28, 2000(+) JUNE 30, YEAR ENDED YEAR ENDED THROUGH 2003 DECEMBER 31, DECEMBER 31, DECEMBER 31, (UNAUDITED) 2002 2001 2000 ----------- ------------ ------------ ----------------- Ratio of expenses to average net assets: Before expense reimbursement...... 0.75%* 0.75% 0.79% 0.78%* After expense reimbursement....... 0.75%* 0.75% 0.79% 0.78%* Ratio of net investment income to average net assets: Before expense reimbursement...... 0.28%* 0.67% 2.70% 5.36%* After expense reimbursement....... 0.28%* 0.67% 2.70% 5.36%* Portfolio turnover rate............ N/A N/A N/A N/A

------------------ * Annualized. (+) Commencement of operations. 91 (This page intentionally left blank) (This page intentionally left blank) Kinetics Mutual Funds, Inc. 1311 Mamaroneck Avenue White Plains, NY 10605 INVESTMENT ADVISER AND SHAREHOLDER SERVICING AGENT Kinetics Asset Management, Inc. 1311 Mamaroneck Avenue White Plains, NY 10605 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 100 East Wisconsin Avenue Milwaukee, WI 53202 DISTRIBUTOR Kinetics Funds Distributor, Inc. 1311 Mamaroneck Avenue White Plains, NY 10605 ADMINISTRATOR FUND ACCOUNTANT AND TRANSFER AGENT U.S. Bancorp Fund Services, LLC 615 East Michigan Street Milwaukee, WI 53202 CUSTODIAN U.S. Bank, N.A. 615 East Michigan Street Milwaukee, WI 53202 THIS MATERIAL MUST BE PRECEDED OR ACCOMPANIED BY A PROSPECTUS ITEM 2. CODE OF ETHICS. Not applicable at this time. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable at this time. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable at this time. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable to open-end investment companies. ITEM 6. [RESERVED] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 8. [RESERVED] ITEM 9. CONTROLS AND PROCEDURES. (a) The Registrant's President/Chief Executive Officer and Treasurer/Chief Financial Officer have concluded that the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) are effective as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act. (b) There were no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the Registrant's last fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a)Any code of ethics or amendment thereto. Not applicable at this time. (b)Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith. (c)Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished herewith. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) Kinetics Mutual Funds, Inc. & Kinetics Portfolios Trust By (Signature and Title) /s/ Peter B. Doyle, President ----------------------------- Peter B. Doyle, President Date August 22, 2003 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Peter B. Doyle, President ----------------------------- Peter B. Doyle, President Date August 22, 2003 By (Signature and Title) /s/ Leonid Polyakov, Treasurer ------------------------------ Leonid Polyakov, Treasurer Date August 22, 2003