---

Item 1. Reports to Stockholders.

 

1

KINETICS MUTUAL FUNDS, INC.
Shareholders’ Letter

---

Dear Fellow Shareholders,

We are pleased to present the Kinetics Mutual Funds (“Funds”) Semi-Annual Report for the six-month period ended June 30, 2021. Equities compounded upon the gains achieved in 2020 during the first half of the year, with the S&P 500 Index rising 15.25%. The gains are likely related to optimism regarding the continued economic growth coming out of the prior year’s recession, coupled with low interest rates. We believe that the latter is having a larger impact on risk assets given the high valuation multiples, yet the equity gains came in spite of the U.S. 10-Year Treasury yield rising from approximately 0.92% at the end of last year to 1.45% at the end of June. It is likely that the market for risk assets is less sensitive to interest rate levels given the extremely low interest rate base –but only up to a point. For example, in 2016, the S&P 500 Index continued to rise in value after an initial decline following the Federal Reserve’s decision to begin increasing interest rates. The upward trajectory lasted through most of 2018, until the overnight lending rate had risen from effectively zero to nearly 2.5%. At this point, the S&P 500 Index abruptly declined nearly 19%, which prompted the Federal Reserve to lower rates, which ultimately ended back at zero in early 2020.

We believe that the interplay of nominal and real interest rates, inflation, and risk asset valuations will be of critical importance in the coming months. Low long-term interest rates would appear to benefit equity and government policy alike, but in our view, inflation is the swing variable that often prevents central bankers from running too free of policies. The Funds are positioned in recognition of these dynamics and the likelihood that higher inflation levels may be permitted in this cycle, as compared to prior economic expansions. However, real yields get lower as inflation levels rise, and longer dated rates are likely to eventually rise with sustained inflation.

A performance summary for the half year ended June 30, 2021 follows (No-Load Class):

The Internet Fund 15.13%; The Global Fund 18.92%; The Paradigm Fund 52.40%; The Medical Fund 15.75%; The Small Cap Opportunities Fund 62.06%; The Market Opportunities Fund 36.61%; The Alternative Income Fund -0.41%; The Multi-Disciplinary Income Fund 2.04%; and the Kinetics Spin-off and Corporate Restructuring Fund 64.98%. This compares to returns of: 15.25% for the S&P 500^® Index; 23.56% for the S&P 600 Small Cap Index; 12.30% for the MSCI All Country World

2

 

(ACWI) Index; -1.60% for the Bloomberg Barclays U.S. Aggregate Bond Index; 3.62% for the Bloomberg Barclays U.S. Corporate High Yield Index; 0.21% for the Bloomberg Barclays 1-3 Year U.S. Credit Bond Index; 12.92% for the Nasdaq Index; and 8.83% for the MSCI EAFE Index.

While we continue to provide equity and fixed income reference benchmark numbers (to aid in understanding how the broad asset classes have performed throughout the first half of 2021), we do not manage our Funds against any specific benchmark, nor have we ever done so in the history of the Funds. We believe that such benchmark adherence is highly detrimental to the long-term returns of a sound investment strategy, particularly in recent years, as the benchmarks themselves have undergone distortions that make them discordant with their original objectives.

In our opinion, there is an abundance of very high-quality businesses in the world, which earn very high returns on invested capital and which have attractive growth prospects. However, many of these companies are trading at valuations that require dramatic future profitability in order to provide an attractive long-term financial return. For example, the Nasdaq 100 Index currently trades at a price to earnings ratio of 46.2x. This represents a 2.2% earnings yield should the companies distribute all of this income to shareholders; however, the vast majority of the companies retain all of their earnings for reinvestment. To be fair, reinvestment at accretive rates is ultimately more beneficial to shareholders than distributed earnings, but in theory, shareholders must receive this income at some point in the future. We can assume that investors in the index today are willing to pay such a high price for the stocks due to their expectations of future earnings growth. A fundamental investor’s assumptions would require some point in time when the stocks growth abates, and the valuation (i.e., shareholder yield) becomes more attractive. We believe that a reasonable shareholder yield in a normalized economic backdrop is approximately 7%, which can be inverted into a price to earnings ratio of approximately 14.3x. If investors were to demand a 7% earnings yield on the Nasdaq 100 Index after a decade of growth, it would require cumulative earnings growth of approximately 225% or 12.5% per annum. These figures may not sound that aggressive based on current or historical growth rates for certain companies, but for this to be sustained for a decade in aggregate is a far more difficult proposition. Furthermore, in the event that nominal U.S. Gross Domestic Product (“GDP”) growth averages between 4%-6% over this time period, the ability to sustainably grow at over 2x has proven to be very limited.

3

 

This exercise illustrates the challenges of paying high multiples for stocks, even if they are experiencing high growth and have high quality business models. The assumptions required to achieve an earnings yield of 7% in 10 years would still only result in a break-even investment experience. In order to provide strong investment returns, the operational performance would need to be magnitudes higher. In truth, it may be overly conservative to believe that the Nasdaq 100 Index will trade at 14x earnings within the next decade, but the important factors to consider are current valuations and the sensitivity of these valuations to interest rates.

On the opposite end of the investment spectrum from the high growth, highly valued Nasdaq 100 Index, are the “hard asset” companies. Even following their very strong performance in the first half of 2021, energy and materials companies still only represent 5.4% of the S&P 500 Index. The valuations of many of these companies appear to imply to us that the earnings profiles are not only never going to grow sustainably, but they will also decline to zero over time. This is a critical distinction in valuation terms: often, the largest component of a discounted cash flow-based value for a company lies in the terminal or perpetual value of the enterprise. This is despite the fact that, over a long enough time horizon, exceedingly few companies have been able to maintain above market profitability and growth, and most are eventually displaced.

Thus, notwithstanding our views on inflation and various hard asset end markets, it is far more appealing to us as value investors to invest in companies with no value assigned to their long-term future, versus the broader market, which implies to us a value for strong growth and profitability into perpetuity.

4

 

KINETICS MUTUAL FUNDS, INC.

Investment Commentary

---

Global markets have enjoyed nearly a decade of relative calm, noted by limited volatility and rising price levels, following the global financial crisis of 2008/2009. In our opinion, two of the most disconcerting aspects of the financial crisis were how few people were able to see it coming, and the exposure of the apparent fragility of the financial system. It was previously unfathomable that declining home prices nationwide could result in the bankruptcies of many of the country’s largest financial institutions. Fast forward to 2020, it could easily have been reasoned that a global pandemic, with travel restrictions spanning over a year for much of the world, could easily topple many of the world’s largest companies.

In our opinion, one of the biggest differences between 2008 and 2020 is that the root cause of the problem in 2020 was well known, even if the ultimate toll was unknowable, and policy makers learned from mistakes during the previous crisis and acted aggressively and quickly. Their policy decisions likely staved off what could have been a full financial depression. However, we believe that the unintended consequence of global governments coming to artificially aid financial asset values twice in the past 12 years is the future expectation of similar actions during every episode of market strife. The resultant moral hazard has likely created many different markets with inefficient and potentially unsustainable pricing. The question will be whether the governments will come to the aid of these markets on each and every occasion that inefficiencies correct (i.e., prices decline).

In our opinion, one market that may be too large for even that federal government to stabilize indefinitely is the U.S. Dollar market. At present, the Federal Reserve remains active buying U.S. Treasuries and other government obligations as part of the stimulus measures enacted last year. However, there is no direct intervention in the market for the U.S. Dollar – nor has there needed to be. The ICE U.S. Dollar Index has risen almost 3% in 2021 (which is a large move for a currency/exchange rate) despite the continued deterioration of the federal U.S. balance sheet. By their own admission, the U.S. Congressional Budget Office expects an aggregate deficit of $12 trillion through 2031: almost all of which will be funded by debt held by the public. While the Federal Reserve can theoretically continue to buy U.S. Treasuries, at some point the market price must be set by public buyers. The 10-Year U.S. Treasury yielded 1.45% on June 30th, while the June inflation (CPI) level was recorded at 5.4%;

5

this netted a real yield of -3.95%. However, we believe that negative real yields are unlikely to persist indefinitely, certainly at this extreme level.

We believe that the relative value of the U.S. Dollar will come into question if real yields remain highly negative (for whatever reason) and global counterparties no longer wish to hold the currency. In the event that the Dollar declines, certain global assets which are priced in dollars (i.e., commodities) could rise substantially. However, many other global currencies have similar issues in terms of government deficits and real bond yields. The Dollar has risen/maintained value against other currencies but has fallen sharply against various tangible assets. Commodities certainly fall into the tangible asset category but gains thus far have been muted compared to certain real estate, fine art, antiques, and other high-end items. We believe that it behooves investors to have a variety of exposure to these types of tangible assets.

The equity-oriented funds (Paradigm, Small Cap, Market Opportunities, Internet, Global, and Spin-off) all benefitted substantially from their high exposure to “hard asset” oriented businesses. These companies possess unique asset bases which are high quality, finite supply and/or are low on the supply pricing curve. We believe that their asset bases enable these companies to benefit from inflationary forces in the economy for many years to come, yet in capital efficient business models. In particular, Texas Pacific Land Corp. (“TPL”) was a stand-out in terms of performance, rising approximately 120% year-to-date. The gain was likely in recognition of the company’s completing a corporate reorganization in January of this year, and of the benchmark oil and gas prices rising approximately 52% and 37%, respectively. The Funds also benefitted from similar exposures to companies in the precious metals, base metals, and real estate industries. The Funds had various degrees of negative attribution from a cryptocurrency pooled investment fund. The underlying investment exposure to cryptocurrencies rose modestly in value for the year; however, the fund began to trade at a modest discount to NAV earlier this year. We believe that this will be reconciled over time.

The income-oriented funds (The Multi-Disciplinary Income Fund and The Alternative Income Fund) have benefitted from shorter durations, although both funds experienced a slight performance drag from defensive cash positions. The rationale for the short duration and higher cash balances is related to the extremely low interest rate environment, which has resulted in very low fixed

6

income returns even further out on the risk spectrum. The yield on the Bloomberg Barclays U.S. Corporate High Yield Index of approximately 4.6% was actually lower than the most recent annual CPI reading (5.4%) of June 30th. Capital preservation is a higher priority at present than is expanding our risk tolerance to access these yields.

We are loathed to invest our funds in a manner heavily influenced by macroeconomic assumptions, but the influence of interest rates and inflation on global asset prices is simply too pronounced to ignore today. Fortunately, there are very high quality, differentiated business models that should benefit from our expected shift in macroeconomic variables, and they are trading at low or reasonable valuations. As might be expected, these companies are invested in heavily by our portfolios and will drive future returns. These types of businesses are not nearly as abundant as are the far more richly valued high growth, high margin “compounding” companies that we also favor (although not at the current price levels). Hence, we are embracing higher degrees of concentration of the higher quality but lower valued companies in our portfolios.

7

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

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

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

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

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

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

8

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

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

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

The MSCI All Country World (ACWI) Index, the S&P 500^® Index, NASDAQ Composite^®, S&P 600^® Small Cap Index, MSCI EAFE^® Index, Bloomberg Barclays U.S. 1-3 Year Credit Bond Index, Bloomberg Barclays U.S. Aggregate Bond Index and Bloomberg Barclays U.S. Corporate High Yield Bond Index each represent an unmanaged, broad-basket of stocks or bonds. 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 Horizon Kinetics Asset Management LLC, Investment Adviser to Kinetics Mutual Funds, Inc.

For more information, log onto www.kineticsfunds.com. July 1, 2021 — Horizon Kinetics Asset Management, LLC^®

9

KINETICS MUTUAL FUNDS, INC. — THE FUNDS

Expense Example

June 30, 2021 (Unaudited)

---

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. (except the Spin-off Fund, each a “Feeder Fund” and including the Spin-off Fund, collectively the “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, 2021 and held for the entire period from January 1, 2021 to June 30, 2021.

Actual Expenses

The Actual Expenses comparison provides information about actual account values and actual expenses. Unlike other mutual funds that directly acquire and manage their own portfolio securities, each Feeder Fund invests all or generally all of its investable assets in a corresponding series of The Kinetics Portfolios Trust (each, a “Master Portfolio”, and together the “Master Portfolios”), a separately registered investment company. The Master Portfolio, in turn, invests in securities. With this type of organization, expenses can accrue specifically to the Master Portfolio or the Feeder Fund or both. Each Feeder Fund records its proportionate share of the Master Portfolio’s expenses, including directed brokerage credits, on a daily basis. Any expense reductions include Fund-specific expenses as well as the expenses allocated from the Master Portfolio. Note, the Spin-off Fund is not a Feeder Fund.

The Funds will charge shareholder fees for outgoing wire transfers, returned checks, and exchanges executed by telephone between a Fund and any other Fund. The Funds’ transfer agent charges a $5.00 transaction fee to shareholder accounts for telephone exchanges between any two Funds. The 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 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 Funds to help offset transaction costs. The Funds reserve the right to waive the redemption fee, subject to their sole discretion, in instances deemed not to be disadvantageous to the Funds or shareholders as described in the Funds’ prospectus.

10

KINETICS MUTUAL FUNDS, INC. — THE FUNDS

June 30, 2021 (Unaudited)

---

A shareholder may use the information provided in the first line, together with the amounts invested, to estimate the expenses paid over the period. A shareholder may divide his/her account value by $1,000 (e.g., 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 paid on his/her account during this period.

Hypothetical Example for Comparison Purposes

The Hypothetical Example for Comparison Purposes provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which are not the Funds’ actual returns. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid for the period. A shareholder may use this information to compare the ongoing costs of investing in the Funds and other funds. To do so, a shareholder would compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of other funds. The expenses shown in the table are meant to highlight ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the Hypothetical Example for Comparison Purposes is useful in comparing ongoing costs only, and will not help determine the relative total costs of owning different funds. In addition, if these transactional costs were included, shareholders costs would have been higher.

11

---

Table of Contents

 

12

 

13

 

14

 

15

---

Note: Each Feeder Fund records its proportionate share of the respective Master Portfolio’s expenses on a daily basis. Any expense reductions include Feeder Fund-specific expenses as well as the expenses allocated for the Master Portfolio.

16

KINETICS MUTUAL FUNDS, INC. — THE FUND

Allocation of Portfolio Assets

June 30, 2021 (Unaudited)

---

The Kinetics Spin-off and Corporate Restructuring Fund

 

---

17

 

 

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

18

KINETICS MUTUAL FUNDS, INC. — THE FUND

The Kinetics Spin-off and Corporate Restructuring Fund

Schedule of Investments — June 30, 2021 (Unaudited) — (Continued)

---

 

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

19

 

KINETICS MUTUAL FUNDS, INC. — THE FUND

The Kinetics Spin-off and Corporate Restructuring Fund

Schedule of Investments — June 30, 2021 (Unaudited) — (Continued)

---

---

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

20

Statements of Assets & Liabilities

June 30, 2021 (Unaudited)

---

 

---

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

21

 

June 30, 2021 (Unaudited)

 

---

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

22

KINETICS MUTUAL FUNDS, INC. — THE FEEDER FUNDS

June 30, 2021 (Unaudited)

---

 

---

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

23

KINETICS MUTUAL FUNDS, INC. — THE FEEDER FUNDS

June 30, 2021 (Unaudited)

---