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September 2011
You should consider the investment objectives, risks, charges and expenses of the Fund carefully before investing. For a free copy of the most recent Prospectus, visit our website at www.kineticsfunds.com or call 1-800-930-3828. You should read the Prospectus before you invest. Performance data quoted represents past performance, which does not guarantee future results. Investment return and principal value of an investment may fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. To obtain performance data current to the most recent month-end, click on the link below.
(Click here for most recent and complete performance information)
(Click here for the most recent portfolio holdings)
Dear Fellow Shareholders,
The Kinetics Medical Fund (“Fund”) (No-Load Class) had returns of -15.60% for the third quarter of 2011, compared with returns of -13.87% for the S&P 500 Index and -12.91% for the NASDAQ Composite, bringing year-to-date performance for the Fund to -2.26%, compared with -8.68% and -8.95% for the S&P 500 Index and NASDAQ Composite, respectively. While uncertainty in the capital markets remains the norm, one can propose the contrapositive: opportunities are in greater abundance. Wild gyrations of equity prices are not necessarily a true reflection of the health of an enterprise. Further, it is during these periods of absolute market aimlessness that the best bargains can be found.
Observe the metrics of the large pharmaceuticals in the Fund. The average forward price-to-earnings ratio is 10. The average price-to-book ratio is 3.5, and the companies have combined revenue of nearly $400 billion. In addition, the average dividend yield is 4.5%, all have very high returns on equity—four of them greater than 30%—and all have growth engines in their research and development programs, which are approximately $50 billion per year. Consider further that these companies are relatively immune to global financial stress, are well capitalized, have little debt, have great cash flow, and supply a product that is of paramount importance to the users.
It is clear that the pharmaceutical industry is not going out of business, and yet in our view these companies trade at a discount. The markets may be efficient in the long-term, but one can clearly observe inefficiencies in the short-term. When recognized, these inefficiencies represent great opportunity. We look forward to the fruition of these investments.
We thank you for your confidence and believe you will be rewarded for it.
The Horizon Kinetics Investment Team
Disclosure
The opinions expressed are not intended to be a forecast of future events, or a guarantee of future results, or investment advice. Additionally, the views expressed herein may change at any time subsequent to the date of issue hereof.
Because the Funds [other than The Paradigm Fund and The Small Cap Opportunities Fund] invest in a single industry, their shares do not represent a complete investment program. 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 presents special risks including currency exchange fluctuation, government regulations, and the potential for political and economic instability. Because smaller companies [for The Global and 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 (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.
Unlike other investment companies that directly acquire and manage their own portfolios of securities, the Funds pursue their investment objectives by investing all of their investable assets in a corresponding portfolio series of Kinetics Portfolios Trust.
You will be charged a redemption fee of 2.0% of the net amount of the redemption if you redeem or exchange your shares 30 days or less after you purchase them.
Distributor: Kinetics Funds Distributor LLC is an affiliate of Kinetics Asset Management LLC, and is not an affiliate of Kinetics Mutual Funds, Inc.
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