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As filed with the Securities and Exchange Commission on

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

(Exact name of registrant as specified in charter)

Date of fiscal year end: December 31, 2011

Date of reporting period: June 30, 2012

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Item 1. Report to Stockholders.

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Dear Fellow Shareholders:

We are pleased to present the Kinetics Mutual Funds (“Funds”) Semi-Annual Report for the six-month period ended June 30, 2012. Considering the recent erratic behavior of capital markets coupled with political and economic uncertainty domestically and abroad, we are encouraged, albeit not satisfied, with the year to date performance for the Kinetics Mutual Funds. Despite the unaccommodating backdrop for investing, our Funds appreciated as follows during the first half of the year: The Paradigm Fund 10.05%, The Multi-Disciplinary Fund 6.47%, The Small Cap Opportunities Fund 12.24%, The Market Opportunities Fund 7.94%, The Internet Fund 8.55%, The Medical Fund 8.59%, The Water Infrastructure Fund 5.91% and The Global Fund 7.40%. This compares to returns of 9.49% for the S&P 500 Index⁽¹⁾ and 5.65% for the MSCI All Country World Index⁽²⁾.

The investment team at Horizon Kinetics LLC, parent company to the Funds’ investment adviser, Kinetics Asset Management LLC (“Kinetics”), adheres to a dedicated value-oriented investment process which focuses on the fundamental characteristics of every individual company. Although investment decisions are driven by bottom-up analysis, one should not infer that we are uninformed or dismissive of macroeconomic data. In fact we believe that there are various high level factors that have had, and will likely continue to have, an influence on business operations and asset prices.

Government policy makers across the globe reacted to the global financial crisis of 2008 with a combination of monetary and fiscal policy measures. Monetary easing (lowering interest rates) was the first and perhaps most powerful tool utilized by policy makers. This measure alone proved to be insufficient and governments were forced to engage in aggressive fiscal easing through a reduction of corporate taxes and an increase in government spending (including direct investment and lending in the private sector). We are currently in the fourth year of such policy measures and domestic interest rates remain at multi-decade lows, as governments continue to inject capital into the private sector. A new form of economic stimulus has emerged in which governments allocate funds towards the purchase of sovereign debt with the goal of depressing bond yields. In Europe, such measures are aimed at lowering the borrowing costs for nations with strained budgets. Conversely, similar measures in the United States attempt to further suppress domestic bond yields so as to make prospective yields so unpalatable that investors feel compelled to allocate their funds to riskier productive assets (including equities). Thus far the

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U.S. government has been very successful in suppressing domestic bond yields; however, the desired result of diverting capital to other asset classes has yet to significantly materialize.

The maintenance of low interest rates (real and nominal) in the United States and much of Europe has profound implications beyond those that are immediately apparent. Consider the number of individuals, corporations, pensions, and foundations that require a real return on their capital. As of this writing, 10-year U.S. Treasury Bonds yield approximately 1.5%, a rate that in and of itself is quite low. However, this return becomes even more miniscule once inflation and taxes are considered. The U.S. investment grade corporate bond market currently offers yields that are not meaningfully higher than the U.S. Treasury market; however, fund flow data shows continued large flows of capital into bond funds. This translates to trillions of dollars of assets earning next to no return; yet, alternative investment vehicles do exist.

The proliferation of exchange traded funds (“ETFs”) over the past decade has resulted in an increasing amount of capital being allocated to indexing strategies. Consistent with this phenomenon, the small amount of incremental capital that is currently being allocated to equities is generally going into equity index-based ETFs. Evidence suggests that such capital flows are distorting the valuations of index constituent companies, particularly in comparison to companies that are widely excluded from popular indexes. In other words, the largest and most liquid equities that populate the largest equity indexes are not particularly inexpensive, but many companies not included in such indexes are trading at remarkable discounts. We believe that our Funds are invested in these overlooked securities, and that it is only a matter of time until other investors are drawn to these stocks. This process has been evolving for nearly four years, dating back to the global financial crisis, yet we believe that we are nearing a tipping point for fixed income investors who are earning close to no yield. We believe the family of Kinetics Mutual Funds is positioned to capitalize upon this shift.

Shareholders can continue to access additional information from our website, www.kineticsfunds.com. This website provides a broad array of information, including recent portfolio holdings, quarterly

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investment commentaries, conference call transcripts, newsflashes, recent performance data, and online access to account information.

Kinetics offers the following funds to investors:

The Paradigm Fund focuses on undervalued companies that currently have, or which should soon have, sustainable high returns on equity without the excessive use of leverage. The Fund has produced attractive returns since inception in an environment that should be described as difficult for equity investors. For those who are interested in a product with the potential for lower volatility, we encourage you to examine our Multi-Disciplinary Fund, listed below.

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

The Small Cap Opportunities Fund focuses on undervalued small capitalization equities that have the potential for rewarding long-term investment results. The investment and portfolio construction processes are similar to those of the Paradigm Fund, but are focused on small and mid-capitalization businesses.

The Medical Fund is a sector fund, offering an investment in scientific discovery within the promising field of medical research, particularly in the development of cancer treatments and therapies. The Fund may be invested across a variety of medical related companies including biotechnology and pharmaceuticals.

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

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The Global Fund’s mandate was changed in early April 2008 to an emphasis on global investments. This Fund is truly a go-anywhere fund designed to allocate capital to the markets with the best overall risk adjusted investment opportunities. As such, the Fund is presently positioned to benefit from opportunities in the more developed world markets. The investment and portfolio construction processes are similar to those of the Paradigm Fund, but are focused on global opportunities.

The Market Opportunities Fund focuses on those companies that benefit from increasing transactional volume or throughput, such as publicly-traded exchanges and credit card processors, or companies that act as facilitators, such as airports and publicly-traded toll roads. These businesses are often able to increase sales with no or low reinvestment costs, resulting in high margins and increasing cash flow.

The Water Infrastructure Fund is a sector fund that invests in global companies engaged in water infrastructure and water-specific natural resources, as well as related activities. To supplement the equity investments, the Fund also utilizes The Multi-Disciplinary Fund’s options strategy employed upon water businesses. This provides the Fund equity exposure and exposure to the water industry, complemented by income from put options.

Peter B. Doyle

President

Kinetics Mutual Funds, Inc.

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Dear Fellow Shareholders,

Needless to say, the first half of 2012 was particularly eventful — the very thought of attempting to address all of the events that impacted capital markets during the past 6 months is overwhelming. We do not envy the economists and macroeconomic investors who attempt to make sense of the seemingly infinite factors that contribute to asset price fluctuations in the short term. Even if one were able to amass all of the relevant data in a timely manner, there is no way to precisely forecast how all of these factors will combine to ultimately influence asset prices. Despite the extreme difficulty and inherent uncertainty in investing on the basis of macroeconomic events, many otherwise rational people attempt to do so. This has resulted in equities surging and retreating in value in reaction to speculation regarding a multitude of factors (many of them political). Thus, the valuations of many equities do not currently reflect the underlying business fundamentals, and those that are priced in line with fundamentals are perhaps coincidentally so.

This environment is very discouraging for us as long-term, fundamental value investors. We continue to be confident that the fundamentals will dictate long-term investment returns; however, due to the severity and magnitude of the global financial crisis, it appears that “long-term” may be a longer period of time than had been previously imagined by many. This period is not without precedent; value investors underperformed terribly during the inflated prices that materialized during the “technology bubble.” However, those with the confidence and mettle to abstain from purchasing securities with inflated valuations turned out to be the best performers over the subsequent five year period. We believe that we are in a similar situation at present; those who will be rewarded for their confidence and mettle are those who are willing to buy and hold high quality, undervalued equities. We have no doubt that the day will come for these securities; however, we recognize that the market may remain inefficient for an extended period. We believe that our best strategy as investors is to maintain our positioning while looking for incremental opportunities.

If one were able to look solely at the financial and operating results of the companies in our Funds, without influence from the media or other detractors, one could easily infer that the global economy is in a robust expansionary phase. A good portion of the companies that we own are more profitable than in the period preceding the financial crisis, yet share prices are still below pre-crisis levels. In response, many of these companies are using abundant

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cash flows to repurchases their shares; some companies are even issuing long-term debt at very low rates in order to fund share repurchases. It is easy to understand the motivation for such actions; hypothetically, a company can borrow at 4% for 30 years in order to repurchase its shares with a cash flow yield well in excess of 10%. The most proactive corporate managers (mostly owner-operators⁽¹⁾) are currently initiating mergers, acquisitions and other corporate actions that are accretive to shareholders. The incremental benefit of having a savvy owner-operator leading a company in this period is profound; hence, we maintain our unwavering confidence in the companies in our Funds’ portfolios.

Achieving outsized investment returns often requires a unique approach, as well as confidence and composure during times of panic. It is easy to invest when everything is working perfectly and there are no known systemic threats, but these periods often follow periods of truly exceptional returns for those who had invested before the full stability was achieved. We recognize the risks in capital markets, but believe that a good deal of this sentiment is priced into equities at their current levels — consider the levels at which equities might be trading if overarching risks weren’t depressing values. Even in light of these well known risks, many of the companies that we own are achieving excellent returns on capital amidst a backdrop of near-zero interest rates. We profess no ability to forecast equity prices, however we are firm believers that if given enough time, business market values will ultimately be reconciled with fundamentals. We look forward to embracing this development alongside our shareholders.

Peter B. Doyle

Chief Investment Strategist

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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.

Mutual Fund investing involves risk. Principal loss is possible. Because The Internet Fund, The Medical Fund and The Water Infrastructure 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 that is generally higher than that of other industries and have experienced extreme price and volume fluctuations. International investing [for all Funds] presents special risks including currency exchange fluctuation, government regulations, and the potential for political and economic instability. Accordingly, the share prices for these Funds are expected to be more volatile than that of U.S.-only funds. Past performance is no guarantee of future performance.

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

Non-investment grade debt securities [for all Funds], i.e., junk bonds, are subject to greater credit risk, price volatility and risk of loss than investment grade securities. Further, options contain special risks including the imperfect correlation between the value of the option and the value of the underlying asset. Investments [for The Multi-Disciplinary Fund and The Water Infrastructure Fund] in futures, swaps and other derivative instruments may result in loss as derivative instruments may be illiquid, difficult to price and leveraged so that small changes may produce disproportionate losses to the Funds. To the extent the Funds segregate assets to cover derivative positions, they may impair their ability to meet current obligations, to honor requests for redemption and to manage the investments in a manner consistent with their respective investment objectives. Purchasing and writing put and

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call options and, in particular, writing “uncovered” options are highly specialized activities that entail greater than ordinary investment risk.

As non-diversified Funds, the value of Fund shares may fluctuate more than shares invested in a broader range of industries and companies.

Unlike other investment companies that directly acquire and manage their own portfolios of securities, The Kinetics Mutual Funds pursue their investment objectives by investing all of their investable assets in a corresponding portfolio series of the Kinetics Portfolios Trust.

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

The Nasdaq Composite (NASDAQ) and the Standard & Poor’s 500 Index (S&P 500) each represent an unmanaged, broad-basket of stocks. They are typically used as a proxy for overall market performance.

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

For more information, log onto www.kineticsfunds.com.

July 1, 2012 — Kinetics Asset Management LLC

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Shareholders incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvestments of dividends or other distributions made by a Fund, redemption fees, and exchange fees, and (2), ongoing costs, including management fees, distribution and/or service (12b-1) fees, and other Fund expenses. This example is intended to help investors understand the ongoing costs (in dollars) of investing in a series of Kinetics Mutual Funds, Inc. (each a “Feeder Fund” and collectively the “Feeder Funds”), and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested on January 1, 2012 and held for the entire period from January 1, 2012 to June 30, 2012.

Actual Expenses

The first line and second line items of the table below provide information about actual account values and actual expenses before and after expense reimbursement. Unlike other mutual funds that directly acquire and manage their own portfolio securities, each Feeder Fund invests all or generally all of its investable assets in a corresponding series of The Kinetics Portfolios Trust (each, a “Master Portfolio”, and together the “Master Portfolios”), a separately registered investment company. The Master Portfolio, in turn, invests in securities. With this type of organization, expenses can accrue specifically to the Master Portfolio or the Feeder Fund or both. The Adviser for the Master Portfolios has directed a certain amount of the Master Portfolio’s trades to brokers believed to provide the best execution and, as a result, the Master Portfolios have generated direct brokerage credits to reduce certain service provider fees. Each Feeder Fund records its proportionate share of the Master Portfolio’s expenses, including directed brokerage credits, on a daily basis. Any expense reductions include Fund-specific expenses as well as the expenses allocated from the Master Portfolio.

The Feeder Funds will charge shareholder fees for outgoing wire transfers, returned checks, and exchanges executed by telephone between a Feeder Fund and any other Feeder Fund. The Feeder Funds’ transfer agent charges a $5.00 transaction fee to shareholder accounts for telephone exchanges between any two Feeder Funds. The Feeder Funds’ transfer agent does not charge a transaction fee for written exchange requests. IRA accounts are assessed a $15.00 annual fee. Finally, as a disincentive to market-timing transactions, the Feeder Funds will assess a 2.00% fee on the redemption or exchange of Fund shares held for less than 30 days. These fees will be paid to the Feeder Funds to help

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offset transaction costs. The Feeder Funds reserve the right to waive the redemption fee, subject to their sole discretion, in instances deemed not to be disadvantageous to the Feeder Funds or shareholders as described in the Feeder Funds’ prospectus.

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

Hypothetical Example for Comparison Purposes

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

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

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